POSTWAR INVESTMENT IN INDUSTRY IN THE USSR

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• Publication Date: February 11, 1955
• Content Type: REPORT

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45~~74
ECONOMIC INTELLIGENCE REPORT
POSTWAR INVESTMENT IN INDUSTRY
IN THE USSR
CIA/RR 54
it February 1955
CENTRAL INTELLIGENCE AGENCY
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Th1s material contains information a8ectinR
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs..79S .and 794, the trans-
mission or revelatlon~of which in any manner
to an unauthorized person 1s prohibited by ]aw
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ECONOhffC INTELLIGENCE REPORT '
POSTWAR INVESTMENT IN INDUSTRY
IN THE USSR
CIA/RR 5~+
(ORR Project 32.218)
CENTRAL INTELLIGENCE AGENCY
Office of Research a,nd Reports
S-E-C-R-E-T
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The .purpose of this report is to develop estimates of investment
by branches of industry in the USSR during the. postwar years and to
analyze the postwar Soviet industrial investment policy. In addi-
tion to developing investment estimates by industry, a preliminary
exploration of the relationships between postwar investment and changes
in output is undertaken for certain industries.
The report is limited to the industrial sector of the Soviet
economy, which is defined as including all manufacturing and mining
activities and electric power generation. It .does not cover invest-
ments in transportation, communications, agriculture, trade, and
nonindustrial construction financed outside of the budgets of the
industrial ministries.
Information pertaining to investment in industry in the USSR is
scattered widely throughout the central and regional press, trade
journals, and books. It is believed that further research in this
material can eliminate many of the ambiguities and gaps in this report.
Improved estimates of total investment in the USSR during the postwar
years and improved price indexes for investment-goods in the USSR are
still being developed. The comparisons made in this report between
total investment and investment in industry or particular branches of
industry will be subject to change when the results of the current
research on total investment are available. Similarly, the conver-
sions of the estimates of investment in industry or in particular
branches of industry from current prices to constant 1945 .prices, or
vice versa, will be subject to revision when the new price indexes
become available. It is believed that the changes occasioned by the
results of the new research will be minor in nature. Most of the new
estimates of total investment and the new price indexes .are expected
to fall within a range of .plus or minus 5 percent of those used in
this report.
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Summary and Conclusions ...
1
I. Introduction: Intelligence Value of Investment
Analysis
8
II. Investment in Industry in the USSR
12
A.
Investment Trends
12
B.
Industrial .Investment Program, 1953-54
13
C.
Structure of Investment
16
D.
Nonproductive Investment by Industrial Ministries
17
III. Investment in the Electric Power Industry
21
A.
Coverage of the Estimates
21
B.
Investment Trends
22
C.
Capital-Capacity Ratios..
23
D.
Structure of Investment
26
E.
Derivation of the Estimates
28
F.
Reliability of the Estimates
32
IV. Investment in the Coal and Petroleum Industries
32
A.
Coverage of the Estimates
32
B.
Investment Trends
34
C.
Investment Program, 1954
37
D.
Regional Petroleum Investment Pattern
38
E.
Capital-Output Ratios
38
F.
Structure of Investment
43
G.
Derivation of the Estimates
45
H.
Reliability of the Estimates
52
V. Investment in the Metallurgical Industry
52
A.
Coverage of the Estimates
52
B.
Investment Trends
54
C.
Investment Program, 195k
56
D.
Capital-Output Ratios
56
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E. Structure of Investment 57
F. A Capital Coefficients Approach 58
G? Derivation of the Estimates 61
H. Reliability of the Estimates 63
VI. Investment in the Light and Food Industries .". 64
A. Coverage of the Estimates- . .. 64
B. Investment Trends 66
C: Structure of Investment 68
D. Derivation of the Estimates .. 71
E. Reliability of the Estimates 78
VII. Investment in the Machine-Building and Construction
Materials Industries 78
A. Coverage of the Estimates 78
B. Investment Trends 80
C. Investment Program, 1954 81
D. Derivation of the Estimates 82
VIII. Investment in the Residual Industries 84
A. Definition of the Residual Industries 84
B. Investment Trends 84
C. Allocation of Investment among the Residual '
Industries 85
IX. Postwar Industrial Investment Policy of the USSR 88
A. Principal Features 88
B. Phases of Soviet Postwar Investment Policy 88
C. Conclusions 90
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1. Investment by Branches of Industry in the USSR
as Percentages of Total Investment, 1946-54 2
2. Investment by Branches of Industry in the USSR, .
1946-54 5
3. Indexes of Investment by Branches of Industry
in the USSR, 1946-54 6
4. Investment in Industry in the USSR Compared with Iota]. .
Investment-and with Total Centralized Investment,
1946-53, 1954 Plan 14
5. Distribution of Productive Fixed Capital Stocks
of, Industry in the USSR by Major Components,, 1937 18
6. Investment in Machinery and Equipment as Percentages
of Total Investment in Machine-Building Plants
in the USSR, 1949 19
7. Investment in the Electric Power Industry in the USSR,
1946-53, 1954 Plan 21 .
8. Investment in the Electric Power Industry in the USSR
as Percentages of Total Investment and Total Invest-
went in Industry, 1946-53, 1954 Plan 22
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9. Incremental Capital-Capacity Ratios for Investment
in the Electric Power Industry in the USSR, 1946-50,
1949-52 '.
24
10. Increase in Installed Rated Electric Power Capacity
in the USSR, 1946-53
25
11. Derivation of Estimates of Investment in the Electric
Power Industry in the USSR, Excluding Nonproductive
Investment by the Ministry of Electric Power Stations,
1949-50
27
12. Investment in the Peat Industry in the USSR by the Minis-
try of Electric Power Stations, 1947-48
28
13. Capital Investment in the Coal and Petroleum Industries
in the USSR, 1946-53, 1954 Plan
33
14. Investment in the Coal and Petroleum Industries
in the USSR Compared with Total Investment and Total
Investment in Industry, 1946-53, 1954 Plan
35
15? Rates of Growth of the Output of Coal and Crude Oil
in the USSR, 1946-53'
36
16. Incremental Capital-Output Ratios in the Coal
and Petroleum Industries in the USSR, Including
Nonproductive Investment, 1946-51
39
17. Incremental Capita-Output Ratios in the Coal
and Petroleum Industries in the USSR, Excluding
Nonproductive Investment by the Ministries
of the Coal, and Petroletmt Industries, 1949-51 .
40
18. Output of Coal and Crude Oil in the USSR, 1946-53
41
19. Investment in the Coal and Petroleum Industries
in the USSR, Excluding Nonproductive Investment
by the Ministries of the Coal and Petroleum
Industries, 1949-51
43
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20. Housing Construction in the. USSR by the Ministries
of the Coal and Petroleum Industries,.1946,53,
1954 Plan 44
21. Investment in the Metallurgical Industry in the USSR,
1946 - 5 3 5 3
22. Investment in the Metallurgical Industry in the USSR
as Percentages of Total Investment and Total Invest-.
went in Industry, 1947-53 54
23. Planned Increases in the Production of Certain Metals
in the USSR under the Fourth and Fifth Five Year
Plans 55
24. Estimated Value of Ferrous Metallurgical Capacity
Placed in Operation in the USSR, 1946-55 ?? 59
25? Indexes of Investment in Ferrous Metallurgy
and the Value of Ferrous Metallurgical Productive
Capacities Placed in Operation in the USSR,
1946- 5 3 60
26. Investment in the Light ehd Food Industries in the USSR,
1946-53, 1946-50 Plan, 1951-55 Plan, 1954 Plan 65
27. Investment in the Light and Food Industries in the USSR
as Percentages of Total Investment and Total Invest-
ment in Industry, 1946-53, 1954 Plan 66
28. Percentage Distribution of Investment in the Light
and Food Industries in the USSR under the Fourth Five
Year Plan 69
29. Investment in the Light and Food Industries in the USSf~
Excluding Nonproductive Investment, 1946-53, 1953,.
1954 -Plan ... 71
30. Indexes of Investment in the Machine-Building and Con-
struction Materials Industries in the USSR Compared
with Indexes of Total Investment and Total Investment
in Industry 79
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31.
Investment in the Residues Industries in the USSR
as Percentages of Total Investment in Industry,
Various Prewar Years
85
32? Investment in the?Residua1 Industries in the USSR
as Percentages of Total Investment in Industry,
1941 Plan
86
33? Soviet Investment Price Index, 1945-52
34. Nove's Investment Price Index for the USSR,
97
1
4
9
5-53 . , .
98
Figure 1. USSR: Indexes of Investment in the Electric
Power, Petroleum, and Coal Industries
Compared with the Index for Total Invest-
ment .,
Figure 2. USSR: Indexes of Investment in the Meta1-
lurgical and Machine-Building Industries
Compared with the Index for Total Invest-
6
ment .
Figure 3. USSR: Indexes of Investment in the Light
and Food and Construction Materials In-
dustries Compared with the Index for Total
6
Investment
Figure 4. USSR: Index of Estimated Investment in
.Ferrous Metallurgy Compared with the Index
of Estimated Value of Ferrous Metallurgical
6
.Capacities Placed in Operation
60
G
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CIA~RR 54 S-E-C-R-E-T
(~2R Project 32.218) - - - - - -
One of the most significant features of postwar Soviet investment
policy is that the proportion of total investments allocated to the
industrial sector of the economy has been subs+?antially larger than in
any of the prewar years. The other sectors -- agriculture, transporta-
tion and communications, trade, and social-cultural and municipal
construction -- have been receiving, as a group, a smaller share of in-
vestment allocations than during the prewar years. Even in the 1954
Plan, with its increased emphasis on the development of agriculture. and
trade, the proportion oP total investment allocated to the industrial
'sector of the economy is larger than in ax~y of the prewar years, in-
cluding the 1941 Plan, which was a war preparedness plan.
During the 1946-53 period, investments in the light and food in-
dustries absorbed a smaller proportion of total irnestments in industry
than during at~y of the prewar years, with the exception of the 1941
Plan. (For postwar figures, see Table 1.) Coupled with the fact
that the industrial sector as a whole received a much larger share of
total irnestments during the postwar years, this reduction in the
proportion allocated to the light and food industries indicates the
extent of the emphasis on the. development of heavy industry during the
postwar years.
# The est mates and conclusions contained in this report represent
the best ,judgment of ORR as of 1 October 1954.
~ IInless otherwise qualified, the term "investment" refers to
realized irnestment in fixed capital assets; that is, the value of
labor, materials, and equipment expended on fixed capital assets during
a given period of time, usually a year. See Appendix A, Methodology.
Table 1 follows on p. 2.
#-x~t Heavy industry includes all of the industrial sector with the
exception of the light and food industries.
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Investment by, Branches of Industry in the IISSR
as Percentages of Total Investment a/
"Electric
Light and
Year 'Power
Petroleum
Coal
Metallurgy
Food
1946 3.6
3.4
8.1
N.A.
4.6
1947 3.5
4.7
8.2
8.3
5.6
1948. 3.3
5.2
8.0
8.3
5.7
1949 4.5
6.1
10.0
9.7
6.7
1950 4.7
6.3
8.4
8.9
5.8
1951 . 6.1
7.4
8.1
10.0
4.7
1952 7.2
N.A.
N.A.
10.3
4.8
1953 6.8 ~
N.A.
N:A.
10.0
4.7
1954(Plan) 7.0
N.A.
7.4
N.A.
7.6
During the postwar. period, the most favored sector within heavy
industry has been the fuel and energy sector. The proportion of total
investment allocated to the coal, petroleum, and electric power in-
dustries in the postwar years has been about twice the average prewar
proportion. In the early postwar years the greatest emphasis was
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placed on the development of the coal industry. since 19119, investment
in the coal industry has tended to level off, and the emphasis has
shifted to the development of the petroleum and. electric power industries.
(See Tables 2 and 3)?#
Investments in the defense industry (conventional weapons) have not
been at a high level during the postwar years; they have accounted for
a considerably sma]1er proportion of total industrial investment than
during the 1939-111. Period. In 1953 the defense industry (conventional
weapons) is estimated to have absorbed less than 15 percent of total
industrial investment (or less than 12 billion rubles).
The postwar investment programs of the BSSR have been very large-
scale programs. They have probably absorbed a larger fraction of the
gross national product than in most, if not all, of the prewar years.
The allocation of investment among the various sectors of the economy
has been quite stable during the postwar years. There have been,
however, some moderate shifts in the emphasis of Soviet investment
programs. (See Figs. 1-3.~~)
The postwar Soviet investment programs may be divided into three
phases. The first phase, trhich covered the years 19!16-50, was dominated
by a strenuous effort to rebuild and expand heavy industrial capacity.
Heavy industry absorbed about 50 percent of total investment as compared
to only about 110 percent during the prewar years. The sectors of the
economy. oriented toward the consumer, that is, the light and food in-
dustries, agriculture, and trade, received a much smaller share of
investment allocations than in the prewar years. As the Fourth Five
Year Plan proceeded, however, and the Soviet leaders began to feel more
comfortable with the restoration of heavy. industry, small and very
gradual increases in the proportion of investment funds allocated to the
consumer-oriented sectors of the economy were permitted.
During the second phase, which cov=red the years 1951-52, the
very gradual trend toward allocating a larger.?raction o? total in-
vestment to the consumer-oriented industries was reversed, Invest-
ments in the light and food industries declined in 1951 and are
estimated to have remained substantially below the ].950 level in 1952.
Investments in agriculture in 1952 are also estimated to have been
substantially helots the 1950 level, The reduction in investment in
the light and food industries and agriculture between 1950 and. 1952
occurred while total investment was increasing by more than 20 percent,
? Tables 2 and 3 follow on np, 5 and 6, respectively,
~# Following p, 6,
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This shift in investment policy during the 1951-52 period seems clearly
to reflect an adjustment of investment plans occasioned by the Korean
war toward investment undertakings which would make a greater contri-
bution to the short-term military capabilities of the USSR.
The third phase of postwar Soviet investment policy dates from the
death of Stalin and the announcement of the new economic program, with
its new emphasis on investment in the light and food industries, agri-
culture, and trade. The new program got off to a most inauspicious
start. The year 1953 was an abortive one for the investment program of
the USSR. The revision of the investment plan resulted in a substantial
sacrifice of heavy industrial growth in 1953, the increases in invest-
ment in the heavy industries being considerably smaller than the in-
creases reported for arty of the preceding postwar years. Yet, in
exchange for this sacrifice in heavy industry, a relatively small
increase in investment in the light and food industries and agriculture
was actually achieved, This is undoubtedly attributable to the bottle-
necks created by the midgear revision of the investment program,
The 1g54 investment plan of the USSR is very ambitious, Total in-
vestment is to increase by more than 1.9 percent over the 153 level, with
a 12,5-percent increase in heavy industry and an 84-percent incraase in
the light and food industries, This large increase in industrial invest-
ment is to ta'ce place along with substantial increases in investment ;_n
agriculture and in the output of conswmer ;cods and without substantial
reductions in military expenditures. The 1954 investment plan does not,
however; involve a radical departure from the investment policy of the
preceding postwar years. Despite the increased emphasis on agriculture
and trade in the 195Lt investment plan, the proportion of total invest-
ment going to the industrial sector remains essentially unchanged; and,
despite the increased allocations to the light and food industries, the
proportion of total investment allocated to heavy industry is only
slightly less than the proportion of the precedinn postwar years, The
proportion o? total investment going to heavy industry is estimated at
about 48 percent in 1948, 50 percent in 1953, and 47 percent in the
1954 investment plan. On the other hand, the modest reduction in the
proportion of total investment goinv to heavy industry has permitted
very large increases in investment in the light and food industries
and agriculture.
The capability of the USSR to fulfill all of the ambitious 1954
investment plan is subject to question. An examination of the plan
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Investment by Branches of Industry in'the USSR a/
1946-54
Billion Current Rubles
Light
otal
Electric
Petro-
Metal-
and
Investment
Total
Year Power
leum
Coal
1~
Food
in Industry
Investment
1946
2.1
2.0
4.7
N.A.
2.7
N.A.
58.1
1947
2.3
3.1
5.4
5.5
3.7
N.A.
66.2
1948
2.8
4.5
6.9
7.1
4.9
46.4
85.8
1949
5.1
7.0
11.4
11.0
7.6
N.A.
113.9
1950
6.5
8.8
11.7
12.3
8.1
N.A.
138.9
1951
8.8
10.7
11.7
14.4
6.8
N.A.
11t1t.0
1952
10.8
N.A.
N.A.
15.4
7.2
N.A.
149.3
1953
11.0
N.A.
N.A.
16.1
7.6
87.6
160.9
1954
13.3
N. A.
14.0
N.A.
14.4
104.4
190.0
(Plan) .
a. From Tables 4, 7, 13, 21., and 2 pp. 14, 21, 33, 53, and 5, re-
spectively, below.
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Table 3
Indexes of Investment by Branches of Industry in the USSR ~/
1946-54
1948 = 100 (1945 Rubles)
Light_
Total
Electric
'
and
Machine
Construction
Investment
Total
Year
Power
Petroleum
Coal
Metallurgy
Food
Building
Materials
in Industry
Investment
1946
80
46
73'
N.A.
55
N.A.
N.A.
N.A.
79
1947
84
68
79
77
76
87 ~
N.A.
N.A.
82
1948
100
100
100
100
100
100
100
100
100
1949
1110
117
- 126
117
155
110 ~
112
N.A.
120
1950
184
151
134
136
]b5
120
130
N.A. -
146
1951
256
190
137
164
139
'132
175
N.A.
165
1952
324
N.A.
N.A.
181
].117
148
191
N.A.
178
1953
340
N.A.
N.A.
195
155
1bo
203
]bl
192
1954
(Plan)
412
N.A.
176
N.A.
294
N.A.
N.A.
193
227
a. Based on estimates in Ta a adjuste to a 1 price base. Indexes for machine i ing and. construction
materials are from Table 30, p. 79, below, For information on the price index used in converting current prices to
1945 prices see Appendix A, Section 4.
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SECRET USSR Figure 1
INDEXES OF INVESTMENT IN THE ELECTRIC POWER,
PETROLEUM, AND COAL INDUSTRIES COMPARED TO
THE INDEX OF TOTAL INVESTMENT
13424 1.55
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(Measured in constant 1945 prices
SECRET
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(Plan)
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SECRET USSR Figure 2
INDEXES OF INVESTMENT IN THE METALLURGICAL AND
MACHINE-BUILDING INDUSTRIES COMPARED TO THE
INDEX OF TOTAL INVESTMENT
(Measured in constant 1945 prices)
1-
94
8
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1949 1950 1951
SECRET
1954
(Plan)
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INDEXES OF INVESTMENT IN THE LIGHT AND
FOOD AND CONSTRUCTION MATERIALS INDUSTRIES
COMPARED TO THE INDEX OF TOTAL INVESTMENT
(Measured in constant 1945 prices)
(1948 =100)
SECRET
USSR
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1949 1950 1951
SECRET
1953 1954
(Plan)
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fulfillment report for the first 6 months of 1954 indicates the fol-
lowing: (1) although a large number of the heavy industrial minis-
tries were cited as having underfulfilled the investment plan, the
degree of underfulfillment does not, in general, appear to be large,
and the prospects for fulfilling the planned 12.5 percent increase
in investment in heavy industry appear to be reasonably good; (2) it
does not seem likely, however, that the planned increase of more than
80 percent in the 1tpht and food industries will be fulfilled; (3) th'e
3-percent increase in investment in Ferrous metallurgy during the first
6 months of 195b is estimated to be considerabl}= less than the rate of
increase necessary in 1954 a-~d 1955 if the Fifth Five Year Plan pro-
duction goals for ferrous metallurgy are to be met; (ll) a new emphasis
on the development of the coal industry is evidenced by the 6 monthsr
plan fulfilment report, which indicated the first substantial in-
crease in investment in the coal industry since 1949; (5) the 16-per-
cent increase reported for imrestment in the machine-building indus-
try is the largest increase reported for that industry in any com-
parable period during the postwar years; and (6) the relatively small
increase of 10 percent?in the construction materials industry indi-
cates that the Fifth Five Year Plan for irvestment in that industry
probably will not be fulfilled.
The postwar years have been characterized by an extreme.effort to
expand heavy industry, an effort which, from the standpoint of invest- .
ment policy, exceeded in intensity that of the prewar years. This
economic policy paralleled the military policy of the USSR during the
postwar years, a policy which called for the maintenance of an advanced
state of readiness for war. In the heavy industrial sector this policy
was not reflected in extraordinarily large investment allocations to the
defense industry (conventional weapons) but, rather, in large invest-
ments in the basic industries, with particular emphasis on the rapid
development of the fuel and energy sector of the economy.
The new economic policy has not resulted in a drastic chance in
the allocation of investments in the USSR. It has, however, had the
effect of slowing down the Growth of heavy industrial capacity in 1953,
and it has resulted in an investment program in 1951: which is probably
less well-adapted to promote short-term rar capabilities than the in-
vestment pro_rram of any other postwar years particularly tae invest-
ment programs of 151-5z.
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I. Introduction: Intelligence Value of Investment Analysis.
An analysis of investment information and investment policy should
be of considerable value in studying the strategic intentions of
the USSR and in forecasting the direction and rate of growth of the
economy of the USSR. 'In addition, investment information is useful in
analyzing the capital goods producing sector of the economy, providing
an approach to aggregative estimates of capital goods production by
major sectors.
Arty rational investment program must be based on the resolution
of a large number of conflicting goals. It must rest on a series
of evaluations of the relative urgency of the needs of the present
as compared to the needs of the future. Decisions must be reached
concerning the amounts of the potential outputs of consumer end items
and/or military end items which can be sacrificed in the current period
for the sake of increases in productive capacities which will be
realized only during future periods, Of the infinite number of possible
investment undertakings, those which would not warrant the current
sacrifice must be weeded out.' Decisions must also be made with regard
to the construction periods and the "pay-off" periods which can be
permitted on investment undertakings: Since these decisions are
centralized in the hands of the state in the USSR, the nature of the
decisions made should reveal something about the nature of the
policies and expectations which underlie such decisions.
Soviet writers have made it abundantly clear that the investment
policy of the USSR reflects an attempt to maX~m~ze the strategic position
of the state and is not guided by narrow economic considerations. Stalin
himself, in commenting on investment policy determinations, stated: 1/~
It is impossible to regard profitability in a mercan-
tile spirit, from the point of view of the given moment.
Profitability must be regarded from the viewpoint of the
national economy as a whole over several years. Only
such a viewpoint can be called really Leninist, really
Mar~st.
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It follows that the investment policy of the USSR should reflect
the expectations of the leaders of the USSR and their best judgment
as to the means by which the strategic position of the state can be
maximized within the limits imposed by their expectations, one of the
most important of which is their expectation as to the imminence.
of war.
The investment policy of the USSR in the'1937-lil period clearly
indicated a growing belief in the imminence of war, and this belief
was reflected in the allocation of investment among industries.
Between 1936 and 19111 the share of total investments going to industry
increased substantially and the share going to the other. sectors
of the economy (agriculture, trade, housing, and other nonindustrial
construction) declined. 2/ Within the industrial sector between 1936
and 19111, the share'of the total investment in industry allocated to
heavy industry increased from 76.5 percent to 96.2 percent, and the
share allocated to the light and food industries declined from 23.5
percent to 3.8 percent. idithin the heavy industrial sector an increas-
ing share of investment funds, particularly in the latter years of the
1936-1a1 period, was going into plant and equipment for the production
of military end items. 3/
A belief in the imminence of war was also reflected in restric-
tions placed on the maximum time for construction of investment pro-
jects. In I+farch 1937 the Council of Peoplesr Commissars ordered all
investment plans to be revised so that the construction time for aqy
investment project would not exceed 2 or 3 years. Reflecting this policy,
about 85 percent of all investment funds allocated to the ferrous
metallurgical industry in 1937 were ?or new units to be placed in
operation in the same year. 1r/
An article in V~op~ros~' ekonomiki in 1950 indicates that current
decisions on the scare of new plants to be constructed are not to be
based solely on economic considerations. Strategic considerations
must also be weighed in the balance. After generalizing that the
larger the plant, the longer the construction period is likely to
be, the article states:
-9-
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 The scale of construction and, most important, the
directions and methods of its realization must be
deterrrdned primarily by the need for winning time.
This policy was reflected during '~+orld ?~Iar II in the construction of
medium- and-small-scale plants which, while often extremely uneco-
nomical to operate, had the great advantage of producing within a
period of time that was relevant to the war effort.
The alterations in current and future investment policy in the USS?l
that would accompany a belief by its leaders that rrar is imminent would
not necessarily parallel the adjustments in investment policy prior to
SJorld .'Jar II. The Soviet econorr~y has changed considerably since the
prewar years, the relative strengths of the various sectors of the eco-
norgy-have been altered, the state of readiness of the military forces
is considerably different, and the nature of war itself has undergone
revolutionary changes. It would seem likely, hourever, that the expec-
tations of the leaders of the USSR as to the pmobability of a major war
in the short-term future would be reflected in their invest_*aent policies,
Soviet intentions were stated as follows: 6/
(1) They should be of strategic rather than tactical sig-
nificance -- that is, they should have such a basic bearing
on the Soviet power potential as to take them out of the
category of mere "war of nerves" measures, or of pre-
parations for purely local armed action.
(2) They should involve such large-scale readjustments
of Soviet power resources, and should be either so costly,
or so disruptive of long-range Soviet plans, that the
Kremlin could ill afford to undertake them unless it was
convinced that e~ly general war was a very. real possibility.
(3) They should be difficult to conceal from observation
by to*estern intelligence.
(1~) They should be of a sufficiently long-range character
to give us at least several months' advance orarning,
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Investment policy would seem to meet ell of these criteria of a
good indicator of strategic intentions, It should, perhaps, be em-
phasized that it is the pattern of investment that is significant for
the study of intentions, It would be extremely hazardous to speculate
about Soviet intentions solely on the basis of a small sector of the
investment picture, Economic relationships are complex, and many
factors could account for a deviation of investment policy in one
sector away from the general pattern, The poatponement'of the comple-
tion dates for the "Great Construction Protects," which become clearly
evident in the last 6~months of 1953, ~ is a cage in point, Considered
in isolation, this withdrawal of resources from protects requiring very
long construction periods ~,rould seem o.~ainous; but considered i.n con-
tunetion with the plans for substantial increases in agricultural out-
put and the output of consumer goods within a 3-year period, it may be
seen in a different light,
Among the principal determinants of the economic growth of the USSR
will be the rats and the allocation of capital investment; For this
reasons studies of i.nvestmant and o? the relationships bet~+een invest-
ment and changes in output are essential for forecasting the economic
growth of the USSR.
A number of other types of intelligence problems may be approached
through estimates of industrial invest~aent and through an analysis of
their components, Among these are the following:
1. Estimating the value of the various components of investment,
The USSR occasionally publishes infos-aation on the structure
of investment in the econogy and in particular industries, This
information, together rrith the investment estimates, could be
used to estimate the total value of machinery and equip:!ent being
produced, the total value of machinery and eoui~ent going to
particular industries, and the value of tiro output of specific
types of eouiFment,
2, Preparing indexes of the production of specialized industrial
equi}srent,
In the absence of a reasonable sample of physical output es-
timates, an 'index of investment in an industry could be used as
an index bf the output of specialized equig~ent used solely by
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the industry. An index of investment in the petroleum industry,
for example, should be a reasonab],y good gauge of changes in the
output of oil field and petroleum refining equipment.
Information on investment in industr~,r pertaining to one area
of the country, which is often found in the Soviet press, can be
compared with the national investment figure for the. industry to
determine the regional pattern of growth of the industry.
II. Investment in Industry in the USSR.
A. Investment Trends.
One of the most significant features of postwar Soviet invest-
ment policy is that the share of total investment allocated to industry
has been substantially larger than in any of the prewar years. The
other sectors --'agriculture, transportation and communications, trade,
and social-cultural and municipal construction -- have been receiving,
as a group, a smaller share of investment allocations than during the
prewar ,years. 8/
During the 1946-51 period, 64 percent of centralized invest-
ments were allocated to the industrial sector of the econo~ (see
Table q#) as compared with only 50 to 60 percent during the 1937-Ltl
period. The term "centralized investments" refers to those categories
of investment which are included in the State plan for capital invest-
ments. The comparison of investment in industry Vrith centralized in-
vestments, however, gives an exaggerated impression of allocations to
industry, since a large part of investments in agriculture, the
investments by collective farms from their own resources, is not
included. The term "total investments," as used in this report,
includes, in addition to centralized investments, investments by
collective farms from their own resources and, prior to 19Lt9, "extra-
limit" investments. 9/ Capital repairs are excluded from the concept
of "total investmentT' used in this report. Since the estimates of
investment in particular industries and the data for total investment
# P. ].1~, below.
~ Mayor repairs to equipment and structures.
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in industry do not include capital repairs, a concept of total in-
vestrr~nt which also excludes capital repairs is preferable for com-
parative purposes.
During the postwar years, investments in industry accounted for
about 50 to 55 percent of total irnestment in the USSR, as coma3red to
lt0 to 45 percent during the 1938-L:1 period. Not even in the 1941 Plan,
which was a war preparedness. plan, were the allocations to industry so
large a fraction of total investment as during the post~?rar years.
In the Fourth Five fear Plan, investments in industry were to
absorb 1$7.5 billion rubles out of centralized investments of 2$0.3
billion rubles (in 19b5 prices), or 62.8 percent of the total. That
this planned dis+,ribution of investment was carried out is indicated
by the report that, of the actual centralized investments during the
1946-51 period, about 6p percent .rent to the industrial sector.
Approximately the same distribution of investment was planned
for the Fifth Five'Year Plan. It was reported that about two-thirds
of centralized investments during the 1951-55 period were to go into the
industrial sector of the econorr{p: 10 The recent emphasis on the de-
velopment of agriculture has not su stantially affected this plan (see
Table h).~
The year 1953 *??ras an abortive one for the industrial investment
program of the USSR. Following Stalin~s death, the revision of the in-
vestment plan, with its increased emphasis on the development of the
light and food industries and agriculture, resulted in a substantial
sacrifice of heavy industrial gro*.?rth. The 1953 investment increases
reported for all of the heavy industries mere considerably smaller than
the increases reported for any of the preceding postwar ,years. Yet
in exchange for tnis sacrifice in heavy industry, a most unspectacular
increase in investment in the light and food industries and agriculture
arcs actually achieved. This is undoubtedly attributable to the bottle-
necks created by the midyear revision of the investment program.
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 Investment in Indvatry in the QSSR Compared. with Total Eavestmeat
and with Total Centralized Investment
1946-53, 1954 Plan
- -
Total
Centralized
Total T
Investment
otal Investmen
trs ae a Perc
t in Indus-
entage of:
Period ~
Investment 8/.
(Billion Current
Rubles) y/
Inve9tmeat
(Billion Current
Bubles) )>/
in Industry
(Billion Current
Rubles) b/
Total
Investment
Centralized
laveatmeat
1946-50 (Plan) (1945 Prices
) N.A.
250,3 fr/
157.5 d,
N.A,
62,8
1946-51
N.A,
500.0 ~
320.0 ~
N.A.
64.0
1946
58,1 g/
48;7 h
N.A.
N,A,
N:A.
1947 ~
- 66,2 g/
58,4 h,
N.A.
N;A.
N.A.
1948
85.8 .B/
77.0 h,
4 d,
46
1
54
60
3
1949 (Plan) ~
N.A,
105.5 h
,
,
72,2 ~1/
.
x
N.A,
,
68,4
1949
113.9 g/
,
102,2 hJ -
N.A,
N,A,
N.A
1950
138;9 g/
125;7 ham/
N,A.
N.A.
,
N,A,
1951
144.0 g/
129.7 h,
N,A,
N.A.
N.A,
1952
149.3 g/
138,0 h
N,A.
N.A.
N.A.
~
~
1954 (Plea)
190,0
169.0 1/
10 ,4 ]c
54.9
61.8
e. FScclvdes capital repairs, -
b. ~ pt for 1946-50 Plsa, .
c.
d. ~,
e. ~/.
f. ~/.
g. Based oa the centralized investment estimates in-~ and
estimates in ~.
h. ~$/.
i. Based in part on ~.
k.
- ~ -
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S-E-C-R-E-T
A very ambitious industrial imrestment program is planned for
19511. Total investment in industry is to increase by more than 19 per-
cent over the 1953 level, with a 12.5-percent increase in heavy in-
dustry and an 84-percent increase in the light and food industries. 19
This substantial increase in industrial investment is to take place
along with substantial increases in investments in agriculture and in
the output of consumer goods, and without substantial reductions in
military expenditures.
Viewed in the aggregate, the 1954 investment plan does not in-
volve a substantial departure from the investment policy of the pre-
ceding postwar years. Despite the increased emphasis on agriculture
and trade in the 19511 investment plan, the proportion of total invest-
ment going to the industrial sector remains essential7,y unchanged;
and, despite the increased allocations to'the light and food industries,
the proportion of total investment allocated to heavy industry is only
slightly below the proportion of the preceding postwar years. The
proportion of total investment going to heavy industry is estimated
at about 118 percent in 19118, 50 percent in 19$3, and about 117 percent
in the 19511 investment plan.#
On the other hand, it should not be concluded that the new
economic program has had no significant effect on heavy industrial
growth in the USSR. As noted earlier, the revision of the investment
program itself had the effect of delaying heavy industrial growth in
1953. In addition, if the 19511 irvestment program is vieored from the
standpoint of the increment of investment growth, it is clear that
the 1954 investment plan involves an inconsiderable diversion of re-
sources away from heavy industry. The extent of the diversion is
indicated by the fact that the ruble amount of the planned increases
in investment in the light and food industries and agriculture to-
gether substantially exceed the amount of the planned increase in
investment in. heavy industry. The planned increase in investment in
the light and food industries alone is more than two-thirds of the
planned increase in investment in all heavy industry. 20
# These figures were derived by deducting the estimated .investment in
the light and food industries (see Table 26, p. 65, below) from the
published figure for total investment in industry (see Table 4) and
comparing the resulting estimate of investment in heavy industry to
the estimate of total investment for the year.
S-E-C-R-E-T
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The canabilit~r of the USSR. to fulfill all of the ambitious 1954
investment plan is subject to question. .1lthouFh the investment in-
creases reported for the first 6 months of 195h are impressivef it
is evident that the investment plan was behind schedule. 21~ .+ large
number of the heavy industrial ministries were cited as ha-aing under-
fulfilled the investment plan. However, the degree of underfulfillment
in heave industz^r does not appear to be large, and the prospects for
fulfilling the planned 12.5-percent increase in investment in heavy
industry appear to be reasonably good. On the other hand, it does not
seem likely, in view of the first 6 months' performance, that the
planned increase of more +,han 80 percent in investment in the light
and food industries will be fulfilled.
C. Structure of Investment.
Total investment in the USSR in the postwar .years may be
broken down approximately as follot~rs: 22/ construction and installa-
tion of equipment, 60 percent; machinery and equipment, 30 to 35
percent; other, 5 to 10 percent. The construction element, it should
be noted, includes housing and social-cultural and municipal con-
struction. The "other" category includes such itens as geological
surveys, support of the manageu~ent of enterprises under construction,
and, before 1951, the planning of investment projects .;F
Of the machinery and ecpiipment component of investment,
approximately two-thirds, or about 20 percent of total investment,
is in machinery and eq~.iipn+ent that does not require installation,
such as locomotives and rolling stock, automobiles and trucks,
tractors, agricultural eq~.tipment, and ships and boats. The remaining
one-third, or about 10 percent of total investment, is in machinery
and equipment requiring installation, such as machine tools, rolling
mills, or textile machinery. 23~
The"other'rcategory of investment expenditures covers expenditures
that do not result in the nroducti.on of fixed capital assets. Such
expenditures are not reflected in the value of the fixed capital assets
of industry. See Table S,, F. 18, below.
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In April 1954, Premier t~~alenkov announced that during the post-
war years [19l~6-5J the Soviet economy received the following amounts
of new machinery and equipment: 24 industry, over 150 billion rubles;
transport, 50 billion rubles; agriculture, 60 billion rubles. These
magnitudes are consistent with the investment estimates in Table 4~
and with the information that machinery?and equipment account for
about 30 to 3$ percent of total investment.
Only fragmentary information is available on the postwar
structure of investment tirithin the various industries. Soviet data on
the 1937 structure of productive Fixed capital stocks in Soviet industry
as a whole and in certain branches of industry are shrnm in Table 5?~
Although some significant changes may be expected to have occurred in
the postwar ,years, the data shown in Table 5 may be of some value in
interpreting the estimates of investment by industry. Postwar infor-
mation on the proportion of total investment in machine-building plants
represented by machinery and equipment is shown in Table 6.x~ An
intensive search of Soviet trade journals and books should yield
considerably more information on the postwar structure of investment
in industry in the i~SR,
D, Nontsoductive Investment by Industrial Ministries,
In the ASR the bulk of the housing construction and a large
part of other nonindustrial construction are financed through the
budgets of economic organizations, In 1953 it is estimated that
these so-called nonproductive investments accounted for about 20 per-
cent o? total investments in industry,"~*~ For the purposes of
this report the interest in the nonproductive investments undertaken
by the industrial ministries is an indirect interest only, Fo'r a
number. of purposes it is desirable to have estimates of investment
by industry which exclude nonproductive investments, ands in some
cases, the estimates ofnonproductive investments, since they are
derived independently are used to test the reasonableness of the
total investment estimate for an industry,
P, 71F, above.
Table 5 follows on p, 18,
Table 6 follows on p, 19,
See Appendix A, 14ethodology~ for the basis of this estimate,
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Distribution of Productive Fixed Capital Stocks
of Industry in the USSR by Major Components 25/
1937
Con-
Trans-
struction
oortation
Build-
Other Than
Euild-
Plachin-
Power
Instal-
i;quip-
ment and
Industry
ings
ings a
~
lations
All Other
Total
All Industry
Ferrous
30.6
21.5
211.1
9.11
1h.11
100.0
?Yetallurgy
25.8
33.1
20.0
9.6
11.5
100.0
Coal
11.1
55.2
15.11
5.3
13.0
100.0
Textile
39.0
6.3
37.7
9.3
7.7
100.0
a. Includes the construction of coal mines, oil wells ast Furnaces,
ore mines, and similar types of construction.
Since a common methodology will be used in estimating nonpro-
ductive investments for all industries it may be appropriate to state
that methodology at the outset. In the typical case the only information
available on nonproductive investments by an industrial ministry will
be the square meters of housing completed during a period.. In producing
the estimate of nonproductive investment, a value factor is applied to
the figure for housing construction in square meters, and the resulting
value figure is then adjusted to reflect nonproductive investments
other than housing.
The value factor used throughout this report for valuing housing
construction by industrial ministries during the period 1949-511 is 11100
rubles per square meter. This factor is based on several pieces of
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Locomobile
11ew Construction
Rehabilitation
21.4
25.4 to 26.7
Turbine
New Construction
Rehabilitation
Steam Power Boiler
New Construction
Industrial Boiler
ilew Construction
34.9
35.1
25.7
18.5 to 22.2
Power Boiler
Rehabilitation
30.6
Diesel
Reconstruction
29.0
Rehabilitation
30.3 to 32.9
Hoisting and Conveying Pfachine Building
Reconstruction
24.9 to 28.9
Rehabilitation
25.8 to 27.7
Boiler-2lirbine orith Individual Production
.Rehabilitation
a. Portable steam generator and engine set.
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information. The 1`"mister of the Consumer Goods Industry indicated in
a recent statement i:hat housing construction underta'. In the case of these industries
no capacity estimates were available. For this reason, investment had
to be related to changes in output. The capital-output ratios for the
coal and petroleum industries depart from the usual concept of the term
"capital coefficient" for the same reasons that were enumerated for the
capital-capacity ratios for the electric power industry in Table 9; but,
in addition, they will diverge from this usual concept to the extent,
if at all, that the level of output is not an adequate measure o? the
capacities of those industries.
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Measured in constant 1945 prices, imvestment per million
kilowatt capacity, as shown in Table 9, has increased by more than 60
percent during the postwar years. A 1-pear-lag between irroestment
and changes in capacity was used in making the computations. Although
this is too short a lag for the electric power industry, the data on
changes in kilowatt capacity were not adequate to permit a comparison
between the earlier and later postwar years using a longer lag period.
The relative]y low capital-capacity ratio for the 19b6-50 period
is largely attributable to the fact that a large proportion of invest-
ment funds in the early postwar years was devoted to restoring and
modernizing damaged plants and to maintenance operations that were de-
ferred during the war. The continuing increase in the capital-capacity
ratio in the period after 1948 is largely attributable to the increased
emphasis on hydroelectric power development. In the Fifth Five Year
Plan the total capacity of thermal electric poorer stations was to?
double, largely through the expansion of existing power stations,
while the capacity of hydroelectric poorer stations was to triple. 3!r/
Increase in Installed Rated Electric Power Capacity in the USSR
1946-53
Period
Increase in Installed Rated Capacity
191,6-50
lo.o
1950-53
ll.o
1951
3.0
1953
2.8
The increased emphasis on hydroelectric power development is
noted in the report that investment in hydroelectric power stations in
1952 amounted to 182 percent of the 1950 investment. 35/ The estimates
in Table 7 indicate that total investment in the electric Hower industry
as a whole in 1952 was only 166 percent of the 1950?level, measured in
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current prices, and 176 percent of the 1950 level measured in constant
prices. The increased emphasis on hydroelectric power would tend to
raise the capital-capacity ratio for electric power, as computed in
Table 9, not only because the imrestment per kiloiratt is greater than
for thermal pourer stations but also because the construction time is
longer.
Investment in the electric po:~rer industry in the most recent
nostorar years is continuing to increase at a faster rate than installed
kiloiratt capacity. .9 comparison of the 1952 investment with the 1953
increase in capacity indicates a capital-capacity ratio of about lI
million rubles per million kiloiratt capacity in 1952 prices, or about
3 million rubles per million ldlorratt capacity in 19lt5 prices. A1-
though a ratio based on a single year and using a lag of only 1
year is of questionable value; it does indicate that the trend is
continuing.
The former Piinister of Electric Pourer Stations, T;. G. Pervukhin,
discussed the.relative capital costs of hydroelectric and thermal power
stations in a speech in April 1954. 36/ He stated that capital invest-
ment per kiloiratt capacity in the Kuybyshev hydroelectric power station
roras about 5,000 rubles and that capital investment per kilowatt capacity
in the Cherepetsl~y thermal power station was less than this amount. He
added, however, that if the capital investment in the coal mines
necessary to supply the Oherepetsky station were included, the total
investment per kilowatt capacity would be 5,340 rubles. In comparing
the capital-capacity ratios in Table 9~ with the investment per kilo-
watt capacity figures in Pervukhinrs statement, it should be borne in
mind that most of the expanded capacity in thermal power plants in the
Fifth Five Year Plan period was to take place through the expansion of
existing plants. This should involve some rather substantial capital
economies as compared with achieving the same expansion of capacity
through the construction of entirely new plants.
D. Structure of Investment.
Estimates of investment in the electric power industry in 1949
and 1950 which exclude nonproductive investments by the 1`Iinistry of
Electric Power Stations are shown in Table 11.'~r- These estimates were
;r P. 2 above.
:?: Table 11 follows on p. 27.
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derived as follows: A value factor of 1,4.00 rubles per square meter
was applied to the estimates of housing construction in square meters
and the resulting figure multiplied by.125 percent to reflect non-
productive investments other than housing. The estimates show that
in 1949 and 1950 nonproductive investments by the 14inistry of Elec-
tric Power Stations accounted for about 1$ percent of total invest-
ments in the electric power industry.
Derivation of Estimates of Investment in the Electric Power Industry
in the USSR; Excluding Nonproductive Investment by the I?Iinistry
of Electric Poc?:er Stations
1949-50
Square
Meters of Value of
Housing Housing Total Non- Total Total Investment
Construe- Construe- productive Irroest- Excluding Idonpro-
Year ted a~ ted b/ Investment .c~ ment d ductive Investment
1949? 435,000 0.6 0.8 5.1 4.3
1950 535,000 0.7 0.9 6.5 5.6
a..~71
b. A factor of 1,400 rubles per square meter was applied. See p. 26.
c. Value of Housing Constructed multiplied by 125 percent,
d, From Table 7a P? 21, above.
It eras noted earlier that investments by the Itinistrv of Electric
Power Stations would account for about 80 percent of the investments in
the electric power branch of industry. In addition to this, the i?Iinistry
also makes investments in the peat industry and in plants that produce
spare parts for its own ecuipment. The i?",inistry o? Electric Power
Stations produces about 40 percent of the total output of peat in the
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iJSSR. Estimates of investments i.n the peat industry in 1947 and 1948
.by the :'Snistry of Electric Po??rer Stations indicate that such invest-
ments account for on1Y about j percent of total investments in the
Pfinistry.(See Table 12.) Vo information is.available on investments
in plants producing spare parts, but they probably constitute a very
small fraction,of total investm~cnts by the i-Iinistry.
Table 12
Investment in the Peat Industry in the USSR
by the ?Ministry of Electric Power Stations a/ 3$/
.1947-48
I?tillion Rubles
Year
Manned Investment
Actual Investment
1947
~ 64.5
51.5
1948
77.0
~ 70.0
a. Capital investment in the peat industry undertaken by Glavtorfo-
stroy (^iain Administration for the Construction of Peat >;nterprises)
of the I~.inistry of Electric Power Stations.
The estimates of investment in the electric oo??rer branch of
industry are based on the ruble ?iaiu?es for planne3 investment announced
for 1947 and 1953 and the percentage increases in investment reported
foi? the intervening years. (See Table 7.x) Since the I'Iinistry of
Electric Po?aer Stations is estimated to account for 80 percent of the
total investment in the electric power branch of industry, information
pertaining to the Aiinistry has been used in adjusting and checking the
validity of the estimates.
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The 1947 Plan called for the investment of 3 billion rubles in '
1945 Prices in the electric power industry. The 1?tinistry of Electric
Power Stations rras to place into operation 30 percent more new capacity
than it had placed in operation in 1946. 39~ The plan was not fulfilled;
it was announced that the plan for placing near electric poser station
capacity in operation was only 70 percent fulfilled. 40/ This means
that capacity placed in .operation in 1947 was only about 90 percent of
the capacity placed in operation in 1946.
iVo direct information is available regarding the degree of ful-
fillment of the 3 billion ruble investment plan, but it is boom that
investment in the electric power industry in 1947 rras only 4 percent
greater than in 1946. 41/ This, coupled with the fact that the plan
for Putting new capacity into operation was only 70 percent fulfilled,
indicates that the investment plan of 3 billion rubles was not fulfilled.
It is assumed that the 'investment plan for 1947 was underful-
filled by the same percentage as the. plan for putting new capacity into
operation; that is, by 30 percent. Using this assumption, the actual
1947 investment is estimated at 2.1 billion rubles in 19115 prices. This
assumption is consistent with information which will be introduced at
a later point in the analysis.
The investment estimate for 1946 of 2.0 billion rubles in 1945
prices is based on the announcement that investment in 1947 was 4 per-
cent greater than in 1946. 42 The 1946 imrestment plan o? the ;4inistry
of Electric Power Stations was fulfilled by only 90.5 percent. 43/ The
plan for placing new capacity in operation was also underfulfil~d in
1946. .
T}ie estimate for 1948 of 2.5 billion rubles in 194$ prices is
based on the statement that capital investment in the electric Bower
industry in 1948 was 20 percent greater than in 1947. 44/ For the
third straight ,year the plan for placing new capacity into operation
was underfulfilled. The plan called for an increase of 35 percent
over the capacity placed in operation in 1947, while the actual in-
crease ryas 30 percent. 45/
The estimate for 1949 of 3.5 billion rubles in 1945 prices is
based on the announcement that investment in the electric power industry
teas 39 percent greater than in 1948. 46/ The 1949 investment plan for
the i?~j.nisti'y of Electric Power Stations, which called for a 40-percent
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increase over 19118, 47/ was apparently fulfilled. However, the planned
increase of ~6 percent over 1948 in nerr capacity placed in operation teas
not nllfilled. fib/
`Phe 1950 estimate of 11.6 billion rubles in 19115 prices is based
on the report that investment in +,he electric po~?rer industr~~ in 1950
ryas 32 percent greater than in 19119. 119/
The 1951 estimate of 6.11 billion rubles in 19G5 prices is based
on the report that the volume of capital investment in the electric
potaer industry .ras !10 percent ;renter than in 1950. 50/ 0esaite this
impressive increase, hocrever, the investment clan was not fulfilled..51/
A check on the validity of the estimates for the ,years 19116-51
is provided by the statement that the volume of capital investment by
the I?nistrv of :.lectric Power Stations in the first 9 months of 1951
exceeded the volume of ca_oital investment in 1946 and 1947 combined. 52/
This comparison is probably between investment for the first 9 months
of 1951 in 1951 prices and investments in 19116 and 19117 in 19115 Prices.
It is possible, hotaever, that the comparison is in constant prices.
In either case the investment estimates are consistent rorith the state-
ment. If we assume that three-quarters of the estimated 1951 invest-
ment took place in the first 9 months of 1951, then 'investment for
the first 9 months of 1951 would be 11.8 billion rubles in 1911$ prices,
or 6.6 billion rubles in 1951 prices. Eoth.figures are higher than
the 11.1 billion rubles in 19115 Prices estimated for 19116 and 19117
combined.
The 1952 estimate of 8.1 billion rubles in 19145 prices is
based on the announcement that investment in the electric power in-
dustry taws 26 percent greater than in 1951. 53/ The value of new in-
stallations placed into operation in 1952 ryas reported to be 23 percent
greater than the value of those placed in operation in 1951. 511/
An additional check on the validity of the estimates is pro-
vided in a statement by D. Zhimerin, former ?sinister of 1lectric
Power Stations, in Pravda of 13 October 1952. 55/ 1linister Zhimerin
stated:
As a result of the particular concern o? the Party and
of Comrade Stalin personally in regard to electrification,
capital investments in power development by the Plinistry
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of Electric Power Stations have increased 2.2 times
in the last 3 ,years alone.
This statement' is not without ambiguities. One interpretation is that
it is a comparison of the 1952 investment plan ?rrith 1949 investment,
both stated in current prices. Assuming that the actual 1952 invest-
ment plan eras fulfilled, the estimates are consistent jri.tlt the state-
ment, so interpreted. The 10.8 billion ruble estimate for 1952 is
2.1 times the 1949 estimate of 5.1 billion rubles, both being measured
in 'current .prices. If the comparison was made in constant 1945 prices,
the estimated 1952 investment is 2.3 times the estimated 1949 invest-
ment.
It is possible that the comparison in 14inister Zhimerinrs
statement is bet?oeen investment in 1948 and investment in 1951. Under
this interpretation, t;?e estimates do not fare as well. measured in
current prices, the 1951 estimate of 8.8 billion rubles is 3.1 times
the 1948 estimate of 2.8 billion rubles. easured in constant 1945
prices, the 1951 estimate of 6.1r billion rubles is 2.6 times the
1948 estimate of 2.5 billion rubles.
The plan fulfillment report for the first 6 months of 1953
stated that investments in electric porter stations and in the electri-
cal industry were 5 percent greater than in the corresponding 6 months
of. 1952. 56/ 11o reference ryas made to investment in the electric no?aer
industry in the 1953 arunzal plan fulfillment report except the s+,ate-
ment that the plan for completing industrial installations eras not ful-
filled by the liinistry of Electric Power Stations and Electrical Industry. 57/
The only reference to investment in the electric porter industry alone
i.n 1953 was the modest statement that investmen+, in electric Hower
stations eras ;treater in 1953 than in 1952. 58/ 50X1
~ti]e degree of underfulfillnent o the investment plan l~T 50X1
the r:imstr;,~ of Electric Porter Stations :atd Electrical Indus try eras ~
quite 'large. In view of these statements i?,r;ould seem that? the 5-
percent increase reported for investment in electric porter stations
and in the electrical industry "or t;?e first 6 months of 1953 is pro-
bably a rehsonably good measure of the increase in investment in the
elec+,ric porter industry for the entire year. Of tours,, the estimate
for 1953, so derived, is less :jell founded than are the estimates for
the earlier .years.
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In a speech in April 19511, i4. G. Pernll:hiri, the `ormer Iiinister
of %lectric Poorer Stations, made the folloaing statement uith regard to
planned investment in electric power installations in 19511 59
The national economic plan and the State budget
?or 19511 Provide for capital investment in the con-
struction of electric power stations and networks of
all ministries o? more than 13 billion rubles, i.e.,
21 percent more than in 1953?
Applying the 21-percent increase mentioned to the previously de-
rived 1953 estimate would result in a 19511 plan estimate of 13.3 billion
rubles in current prices for investment in the electric poorer industry.
The close correspondence'of the 19511 plan estimate, as derived from the
adjusted 19117 plan figure and the percentage increases for subsequent
years, with the figure in Pervukhin~s statement tends to support the
validity of both the estimates for the earlier years and the method
used in deriving the estimates. ,
F. Reliability o? the Estimates.
In view of the consistency of the series of investment estimates
orith the announced 19511 .investment plans and with the other checks on
the validity o?. the estimates discussed earlier, the range of error should
not exceed plus or minus 20 percent.
I7? Investment in the Coal and Petroleum Industries.
A. Coverage of the Estimates.
The estimates in Table 13;1 refer to investment in the coal and
petroleum branches of industry in the USSR. The coal and petroleum
branches of industry are substantially identical in coverage with the
Iinistries of the Coal and Petroleum Industries, aryl investment in the
branches of industry should be of substantially the same magnitudes as
investment by the corresponding Ministries. The toto main differences in
coverage are relatively small. rirst, investment in machine-building
plants subordinate to the i~:inistries .of the Coal and Petroleum In-
dustries are placed under the machine-building industry rather than
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under the coal and petroleum industries in the branch of industry
classification. Second, investments by coal mining enterprises sub-
ordinate to Republic Ministries of Local and Feel Industry would be
included in the branch classification. It is estimated that at
present 92 percent of the total output of coal is produced by the
tiinistry of the Coal Industry and only 8 percent is produced by local
fuel enterprises. ttoreover, it is believed that more than 92 percent
of postwar investments in the coal industry have been in the Ministry
of the Coal Industry. There is no petroleum production in the USSR
outside the jurisdiction of the Ministry of the Petroleum Industry.
Capital Irnestment in the Coal and Petroleum Industries in the USSR
1946-53, 1954 Plan
a. Investment o anne or 1 t o tinistry o t e oal Industry;
not precisely comparable with the estimates for the earlier years,
which relate to the coal branch of industry.
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The fuel and energy industries have been the most favored
sectors of industry from the standpoint of postwar investment policy.
In the early postwar ,years, 1946-49, the greatest emphasis was placed
on the development of the coal industry. Since 19119, investment in
the coal industry has tended to level off, and the emphasis has shifted
to the development of the petroleum and electric power industries.
During the 1946-l19 period, between 8 and 10 percent of total
investment and about 15 percent of total investment in industry went
to the coal industry (see Table lLi).~ This is about twice the pro-
portion of total investment going to the coal industry prior to the
war. 60~ Since 1949, hoorever, investments in the coal industry have
tended to level off and the proportion of total investment going to
the coal industry has declined.
On the other hand, investments in the petroleum industry have
absorbed a continually increasing share o? total investments in the
postwar ,years. In 19!16 the proportion of total investments allocated
to the petroleum industries was about the same as in prewar years, but
this proportion steadily increased until in 1951 the proportion of
total investments allocated to the petroleum industry was more than
twice the 19116 proportion.
The available information is not adequate to permit estimating
investment in the petroleum industry for the years after 1951. It is
known, however, that investment in the petroleum industry in the Fifth
Five Year Plan was to increase at a faster rate than total investment
in the economy or total investment in industry. The directives of the
Plan provide that total state capital investments are to be 90 percent
greater and investments in industry are to be appro~.mately twice those
during 1946-50. 61 By comparison, capital investment in the petro-
leum industry in the Fifth Five Year Plan is to be ,more than double the
investment during 1946-50. 62
The big shift in the allocation of investment between the coal
and petroleum industries started in 1950? The magnitude of the shift
maybe indicated by a comparison of 1946-117 with 1951 investment. In
1946 and in the 19117 ?lan, investment in the petroleum industry was
less than 115 percent of the investment in the coal industry. BS' 1951
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S-GGR-E-T
Table 1!r
'Investment in the Coal and Petroleum Industries in the USSR
Compared with Total Investment and Total Investment in Industry a1
1946-53, 1954 Plan
Investment in the Coal Investment in the Petroleum .Investment in the Coal and Petroleum
Industry as a Percentage of: Industry as a Percentage of: Industries Combined as a Percentage oft
Total
Total
Investment
Total
Total
Investment
Total
Total.
Investment
Year
Investment
in Industry
Investment
in Industry
Investme~
i.n Industry
1946
8.1
N.A.
3.4
N.A.
11.5
N.A.
1947
8.2
N.A,
4.7
N.d.
12.8
N.A..
1948
8.0
14.9
5.2
9.7
13.3
24.6
1949
10.0
N.A.
6.1
N.A.
16.2
N.A.
1950
8.4
rr.A.
6.3
N.A.
]1t.8
N.A.
1951
8.1
N.A.
7.4
N.A.
X5.6
N-A?
1952
N.A.
N.A..
N.A.
N.A.
15.2
N.A.
6
1953
N.A.
N.A.
N.A.
N.A.
13.9
25.
1954 (Plan) f
7.4
13.4
N.A.
M.A.
N.A,
N.A.
a. Base on information in Ta es and 13, pp, 1J+ and 33, respectively, above.
b. Based on the 14 billion ruble planned investment in the riinistry of .the Coal Industry. It is not precisely
comparable with the percentages for the earlier years, which relate to the coal branch of industry.
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?investment in the petroleum industry amounted to more than 90 percent
of the investment in the coal industry. It seems very likely that in-
vestment allocations to the petroleum industry in the 1954 Plan are.
equal to or exceed the 1Lt billion rubles planned ?or the coal industry.
The evidence of a shift in the allocatidn of investment between
the coal and petroleum industries is supported by estimates of the growth
of production of coal and crude oil. The growth rate of coal output has
declined very sharply since 1950, and the decline in the growth rate of
crude oil output has been less severe. (See Table 15.) In addition, it
is known that the output of light refined petroleum products, which
require large 'capital investments in refining, transport, and storage
facilities, has been increasing at a faster rate than crude oil output.
The. shift in the investment pattern is also reflected in data for
housing construction by the 1linistries of the Coal and Petroleum Industries.
In the Fifth Five Year Plan, housing construction by the petroleum industry
is to increase by 15U percent over the actual volume of housing, constructed
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during, 1946-$0, while the comparable increase planned for the coal .
industry is only 1$ percent. (See Table 20.#)
C. Investment Program, 19$6.
A renewed emphasis on the development of the coal industry is
evident in the 195G investment plan. The plan fulfillment report for
the first 6 months of i9$6 stated that investment in the coal industry
had increased by 23 percent over the corresponding period of 19$3. 65/
This is the largest increase in investment reported for the coal in-
dustrg since 1969. Despite this sizable increase, however, the
Ministry of the Coal Industry was cited as one of the ministries which
failed to fulfill the investment plan for the first 6 months of 19$4.
This wou]:d indicate that the planned increase was somewhere in the
neighborhood of 30 percent over the 19$3 level.
It was recently announced that planned investment by the t?iini-
stry of the Coal Industry in 19$11 is 11r billion rubles. 66/ Although
this sum represents a very substantial increase over the 1953 level
of investment, it represents a smaller share of total investment than
the coal industry received during any year of the 19116-$1 period (see
Table 16). The 111 billion ruble figure, coupled orith the fact that
the 19$4. investment plan for the coal industry represents an increase
of more than 23 percent over the 19$3 level, also indicates that the
'level of investment in the coal industry remained approximately un-
changed betxeen 19$1 and 19$3.
Only fragmentary information is available with regard to the
level of investment in the petroleum industry,and no information is
available with regard to planned investment in the petroleum industry
in 19$4. It seems quite 'certain; hoiaever, that investment in the
petroleum industry in 19$3 was greater than the level of investment
in the coal industry and very likely that the planned investment in
the petroleum, industry in 19$4 exceeds the 111 billion rubles allocated
to the coal industry.
~ P. ,below.
?u-~ For the basis for this statement, see p. 51, below.
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D. Regional Petroleum Investment Pattern.
The heavy emphasis on developing the petroleum industry in the
eastern areas of the USSR is indicated by the pattern of investment
planned for 19(19. In a year when total investment in the petroleum in-
dustry was to increase by probably 30 to Iy0 percent, planned investment
in the petroleum industry in the eastern areas was almost double. ~/
The eastward shift of investment in the petroleum industry is again
illustrated by the fact that, although investment in the petroleum
industry as a whole is estimated to have increased by .30 percent in
1950, investment in the petroleum industry in Azerbaydzhan increased
by only 20.2 percent. 58/
Ratios between investments and changes in the output of coal
and crude oil in the postwar years are shown in Tables 16 and 17.'+
The ratios in Table 16 are based on estimates of total investments
in those industries; those in Table 17 are based on investment es-
timates which exclude nonproductive investments by the Ministries of
the Coal and Petroleum Industries.
Physical measures of the output of coal and crude oil a.re not
completely satisfactory measures for studying changes in capital-output
relationships, since they ignore qualitative differences in outputs.
This is a problem of some concern both in the case of the coal and of
the petroleum industries, but it is probably more serious in the case
of the petroleum industry. Changes in crude oil output would constitute
satisfactory measures of changes in the value of output of the petroleum
industry only if the composition of refined products remained unchanged.
It is known, however, that the proportion of light fractions in refined
petroleum products has been increasing in the ,postwar years. It should ,
therefore be kept in mind that one of the important causes of the
changes in the capital-output ratio in the petroleum industry is the
change in the composition of the output of the industry (see Table 18).~
The most striking feature of the capital-output ratios for the
coal and petroleum industries is the sharp increase in investment per
million metric ton increase in output during the postwar years.
w Tables lb and 17 follow on pp. 39 and 40, respectively.
#~ Table 18 follows on p. 41.
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in ie , nc u ng tlonpro
1946-51
Table 16
Incremental Capital-Output Ratios in the Coal and Petroleum Industries
' t} USSR I 1 di a??-,, .._ r_____~_-_. _ i
a. Rounded to the nearest 50 million rubles. Based on output esti-
mates in Table 18, p. 41, below, and investment estimates in Table 13,
P? 33, above.
b. Relates gross investment during the period 1946-51 to change in
output 1946-52.
c. Investment in Year Y related to output in Year Y plus 1 minus out-
put in Year Y. .
d. Investment in Year Y related to the average output in Years Y plus
1 and Y plus 2 minus output in Year Y.
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Table 17
`Incremental Capital-Output Ratios in the Coal and Petroleum Industries
in the USSR, Lxcluding.IQonproductive Investment
by the Plinistries of the Coal and. Petroleum Industries a/
1949-51
Million Rubles per Plillion Ptetric Ton Increase in Output
Coal
Crude Oil
1949-51 Average b/
400
2,000
One-Year Lag c/
1949
300
1,550
1950
500
1,950
1951
500
2,450
1949
350
1,550
1950
500
1,950
1951
500
2,450
a. Rounded to the nearest 50 million rubles. Hased on output esti-
mates in Table 18 and investment estimates in Table 19, p. 43, beloor.
b. Relates gross investment, excluding nonproductive investments by
the Ministries of the Coal and Petroleum Industries, during the period
1949-51 to change in output 1949-52.
c. Investment in Year Y related to output in Year Y plus 1 minus
output in Year Y.
d. Investment in Year Y related to the average output in Years Y
plus 1 and Y plus 2 minus output in Year Y.
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Output of Coal and Crude Oil in the USSR
1946-53
Year
Coal J
Crude 011 J
1946
164.2
21.7
1947
183.9
26.0
1948
209.7
29.4
1949
236.1
33.6
1950
262.0
37.6
1951
282.4
41.6
1952
301.3
45.6'
1953
32x?0
49.6
a. Estimated. See also
b. Estimated.
Investment per million metric ton increase in output, measured in
constant prices, approximately doubled in the coal industry and more
than tripled in the petroleum industry between 1946 and 1951. The
reasons for these large increases may be classified as follows:
(1) the large proportion of investment in reconstruction and restora-
tion of existing plants in the early postwar years, (2) a decline in
the scarcity of. capital relative to labor, (3) changes in the product
mix, and (4) changes in natural conditions which mqy affect all ex-
tractive industries.
In the early postwar years a large proportion of the invest-
ment funds of all Soviet industries were directed toward restoring
plants damaged during the war or modernizing plants that had suffered
from a lack of normal maintenance during the war. Zrnestment funds
so expended would be expected to result in proportionately greater
increases in output than investment in completely new plates, which
constituted a much larger fraction of total investment in the later
postwar years.
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As the Soviet econorgy expands and capital becomes less scarce,
it is to be expected that capital will be employed more extensively
than in earlier periods. The continuing emphasis on the mechanization
of additional processes in the coal industry is illustrative of this
more extensive use of capital. The Plinister of the Coal Industry in
1952 stated that in a number of the basic processes in coal extraction,
hewing, removal, hauling, and loading into railroad cars, mechanization
had been completed and that in the future more funds would be devoted
to mechanizing surface operations. 70/ This contin~zing substitution of
capital for labor in the coal industry is undoubtedly largely responsible
for the fact that between 1947 and 1951 the output of coal increased by
more than 50 percent faith only a 5 percent increase in '.;he labor force
in the coal industry.
In the petroleum industry the shift to*.aard a proportionately
greater output of light fractions has undoubtedly entailed substantially
increased capital requirements in refining capacity and in storage and
transport facilities. ~~ualitative.changes in coal outnut leave also
contributed toward increasing capital requirements per unit of output.
Efforts to improve the quality of coal have succeeded in red~.icing the
ash content in coal shipped to the .'linistry of Electric Power Stations
from 17.1 percent in 1945 to 15.9 percent in 1950 and rrdzzcing the ash
content of coal shipped to the i?anis.try of Transportation from 2Lt.21 per-
cent to 23.05 percent during the same period. These improvements in
quality have required substantial increases in investments in coal
cleaning plants. The plan for 1951 called ?or placing into operation new
mines with a total capacity 38 percent greater than those. placed in oper-
ation in 1950 and for coal cleaning and briquettine plants frith a total
capacity 184 percent greater than those placed in operation in 1950. 71
Generally speaking, in the extractive industries the expansion
of output requires the utilisation of less and less favorable natural
resources, for example, in the present cases, relatively less productive
coal mines and oil Fields. Under such conditions, increased output
reauires relatively greater inputs of both capital and labor. New
discoveries, however, may make it possible to expand outnut without the
use of relatively inferior coal and oil deposits. The extent to which
the exploitation of less productive nat~.zral roso~zrces has been a factor
in increasing capital requirements per unit oi' output is not knoom.
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F. Structure of Investment.
IrroF-tment estimates for the coal and petroleum industries ex-
cluding nonproductive investment by the Ministries of the Coal and Pe-
troleum Industries are shown in Table 19. In producing these estimates
the factor of 1400 rubles per square meter was applied to the estimates
of housing construction by those Ministries (see Table 20)x# and the
resulting figure was multiplied by 125 percent to reflect other non-
productive investments besides housing.
Table 19
Investment in the Coal and Petroleum Industries In the USSR
Excluding Nonproductive Investment
by the Ministries of the Coal and Petroleum Industries
1949-51
Billion Current Rubles
Year
Total Investment
Nonproductive
Investment
Total Invest-
ment Excluding
Nonproductive
Investment
1949
7.0
0.8
6.2
1950
8.8
1.1
7.7
1951
10.7
0.9
9.8
Tabl- a 20 fo~owa on p. 4~t?
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housing Construction in the USSR by the
Ministries of the Coal and Petroleum Industries
19l~6-53, 195>a Plan
a. Derived by subtracting, the figures for 1948, 1949, and 19$0 from
the 1946-50 total.
b. Derived from the 1950 estimate.
c. Derived by subtracting estimates for 19L8-49 and 1951-52 from the
announced total for 1948-52.
d. Extrapolated from first 9 months production.
.Nonproductive investments by the P?finistry of the Coal Industry
constituted about 21 percent of total investments in the coal industry
during the 1,91x9-51 period, whereas nonproductive investments by the
i~Sinistry of the Petroleum Industry constituted about 11 percent of total
investments in the petroleum industry during the same period. It should
be expected that capital intensive industries, like. petroleum and elec-
tric power, where capital .investment is high relative to the size of
the labor force, would devote a smaller proportion of their investment
funds to housing than would other sectors of industry.
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G. Derivation of the Estimates.
Since the coverage of the Ministries of the Coal and Petroleum
Industries is substantially identical with the coal and petroleum branches
of industries, information pertaining to the ministries has been used
along with information pertaining to the coal and petroleum branches of
industry in producing the estimates. All of the estimates are derived
from the planned 1947 investments. With the exception of the recent
announcement of the 1954 investment plan for the itinistry of the Coal
Industry, 1947 xas the last year for which the Soviet authorities
published ruble investment figures for the coal and petroleum industries.
Planned investment in 1947 amounted to 6.3 billion rubles in 1945
prices for the coal industry arri 2.8 billion rubles for the petroleum
industry. 87 The investment plan for the coal industry, however, was
substantial y nnderfulfilled. Planned investment in the coal industry
in 1947 was to exceed the actual 1946 investment bv.40 percent. 88/
Phe actual volume of investment in the coal industry exceeded the`.1946
level by only 9 percent. 89/ This means that the actual 1947 invest-
ment was 4.9 billion rubles in 1945 prices and the 1946 investment,
4.$ billion rubles.
No information is available as to the degree of fulfillment of
the investment plan in the petroleum industry. Unlike a number of other
industries, the petroleum industry was not cited as underfulfilling the
1947 plan. It is assumed, therefore, that the planned investment of
2.8 billion rubles was fulfilled. The estimate of 1.9 billion rubles
in 1945 prices for investment in the petroleum industry in 1946 was
derived from the report that planned imrestnent in 1947 was 44 percent
greater than the 1946 investment. 90/
Some support for the assumption of fulfillment of the investment
plan in the petroleum industry is found in the reports of drilling and
prospecting operations in 1947. In the southern and iaestern areas in
1947, oil well drilling increased by 56 percent over 1946, including a
44 percent increase in prospecting drilling. In the eastern areas pro-
duction drilling increased by 43.4 percent and prospecting drilling by
46.8 percent over 1946. 91/ Since oil field exploration and development
probably accounted for 6~percent or more of the total investment in
the petroleum industry in 1947, oil field operations should constitute
a reasonably good gauge of total investment in the industry. 92/
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The 19118 estimate for investment in the coal industry, 6.2
billion rubles in 1945 prices, is based on the announcement that. the
volume of capital work in the coal industry in 1948 exceeded the 19117
level by 29 percent. 93/ Even this substantial increase, however, was
not sufficient to fulfill the plan. 9l1/ The 1948 estimate for the
petroleum industry -- 11.1 billion rules in 19115' prices -- is based on
a statement by the Minister of the Petroleum Industry, N.K. Baibakov,
that the volume of capital work exceeded the 19117 level by 45 percent. 95
He stated, however, that the investment plan for the petroleum industry
was fulfilled by only 91.3 percent in 1948.
The plan fulfillment report for 1949 stated that the volume of
capital construction in the coal and petroleum industries increased by
22 percent, over 19117. 96 Separate fi,~,ntres for the coal and petroleum
industry were not given. It is known, however, that the plan for
capital investment in the coal industry called for an increase of more
than 25 percent over the 19118 level, and the plan was fulfilled. 97
It Baas reported that the volume of construction work undertaken by the
construction organizations of the coal industry was 211.5 percent
greater than in 1948. 98/ This statement has reference to construction
in the narrower sense. The plan fulfillment report for the first 9
months of 19119 indicated, however, that the volume of investment in
the coal industry, including equipment as well as construction, *.aas
22 percent greater than during the first 9 months of 19118. 99/
Comprehensive investment data are not available for the petroleum
industry for 19119. It is knorm, hocaever, that the investment plan was
not fulfilled. 100/ The investment plan called for an increase in the
volume of construction and installation work of 110.5 percent over
1948. 101/ Pinister Baibakov announced that in 19119 "constructors in
the petroleum industry carried out 30 percent more construction and
assembly work than they did in 19118." 102/ Given a 22-percent in-
crease in investment in the coal and petroleum industries combined and
a 25-percent increase in investment in the coal industry, the estimates
for the preceding year would indicate an increase in investment in the
petroleum industry o? about 17 percent. This is the basis for the es-
timate o? the 11.8 billion 19115 ruble investment in the petroleum in-
dustry in 19!19. It is not necessarily inconsistent with Minister
Baibakov's claim of a 30-percent increase in the volume of construction
and assembly work carried out by "constructors in +,he petroleum industry"
since his figure does not include purchases of equipment and may not
include contract construction.
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The plan fulfillment report for 1950 stated that the volume of
capital investment in the coal and petroleum industries was 15 percent
greater than 19D9. 103 Separate figures for the coal and petroleum
industries were not given, but the plan fulfillment report for the first
9 months of 1950 stated that the volume of capital investment in the
coal industry was 8 percent greater and the volume of capital investment
in the petroleum industry 30 percent greater than in the corresponding
period of 1949. 1011 In addition, this report stated that the volumes
of construction an installation work of the building organizations
of the coal and petroleum ministries were 14 and 21 percent greater
respectively, than in the corresponding 9 months of 1949.
fhe combined estimate of investment in the coal and petroleum
industries in 1949 is 12.6 billion 'rubles in 1945 prices. If this total
is multiplied by 115 percent (the reported 1950 fulfillment), the es-
timate for 1950 would be llr.5 billion rubles. If the 9-month fulfill-
ment rates for the coal and petroleum industries were applied to the
19119 estimates, the resulting total investment in the coal and petroleum
industries would be 111.6 billion rubles, or 100 million rubles higher.
There is some evidence that the pace of investment in the coal and
petroleum industries was lower in the last quarter of 1950 than in the
preceding 3 quarters. The plan fulfillment report for 19$0 stated that
the volumes of construction and installation work by building organiza-
tions o? the Ministries of the Coal and Petroleum Industries were
7 percent and 19 percent~greater,respectively, than the 1949 levels.
As compared with the 9-month fulfillmen+, report, which gave comparable
percentage increases of 11r percent and 21 percent, this indicates a
marked slackening of the imrestment rate in the fourth quarter, partic-
ularly in the case of the coal industry. It is on trie basis of this
evidence that the growth of investment in the coal industry is estimated
at 7 percent ?or 1950 and the growth of investment in the petroleum
industry at 30 percent, resulting in investment estimates in 19115 prices
of 8.3 billion rubles and 6.2 billion rubles, respectively.
The close correspondence between the estimate of the combined
investment in the coal and petroleum industries derived from the annual
plan fulfillment report and the estimate derived by aggregating the
separate estimates on the coal and petroleum industry tends to indicate
that the relative sizes of the estimates of investment in the coal'and
petroleum industries in 1949 are correct. This does not substantiate
however, the correctness of .the absolute investment levels indicated.
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Nevertheless, it tends to support, to a limited degree, the validity
of the assumptions used .for the earlier ,years.
It is clear that the plan for cauital investment in the coal
industry in 1950 was grossly underfulfilled. Planned investment was
to exceed the 19L9 level by 29 percent. 105/ The estimate indicates
an underfulfillment of the investment plan of more than 1~ percent.
'r7ith regard to the yearrs performance, the Soviet authorities limited
themselves to the mild statement that the volume of capital investment
in the coal industry in 1950 exceeded the 19D9 level. 106/
The 1951 plan Fulfillment report stated that the volume of cap-
ital investment in the coal and petroleum industries was 12 percent,
greater than 1950. 10']/ Again no separate figures were cited, but
a considerable amount of information was made public concerning
various .segments of investment in the petroleum industry. The
Blinister of the Petroleum Industry, N. Baibakov, reported that the
volume of construction and installation work in the petroleum industry
was 25 percent above 1950. 108/ The Deputy Minister of the Petroleum
Industry, V. Kalamkarov, stated that the volume of construction and
installation work of the construction organizations of the Ministry was
24 percent higher than 1950. 109/ Kalamkarovrs statement appeared in
Izvestiya on 29 December 1951 On the same day, Pravda carried an
artic~y N. Baibakov in which he stated that the volume of construc-
tion and assembly work by the construction organizations of the Ministry
was 30 percent greater than in 1950. 110/ The gross production of the
machine-building enterprises of the P~t~nistry of the Petroleum Industry
taas reported as being 22 percent greater in 1951 than in 1950. ill/
Finally, Minister Baibakov reported that the volume of capital invest-
ment in geological and exploratory work was 25.5 percent above that of
1950. 112/
All of this information indicates a level of capital investment
in the petroleum industry in 1951 about 25 percent greater than in 1950.
This would make the investment estimate for the petroleum industry in
1951 about 7.8 billion rubles in 1945 prices. Together with the 12 per-
cent increase in capital investment.in the coal and petroleum industries
combined given by the plan fulfillment report, this would indicate an
investment in the coal industry in 1951 of 8.5 billion rubles in 1945
prices, or an increase of only 2.5 percent over the 1950 level.
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.The investment plan for the coal industry in 1951 called for
a volume of capital investment 18.6 percent greater than 1950. 113/
The plan was not fulfilled, 114/ but the extent of the underfulfillment
has not been reported. If the estimates are correct,. the investment
plan in the. coal industry was underfulfilled by 13.5 percent. Despite
the impressive 25-percent increase in. investment in the petroleum in-
dustry in 1951, the investment plan for that industry was also under-
fulfilled. 115/
The 1952 plan fulfillment report stated that the volume of
capital investment in the coal and petroleum industries was 5 percent
greater than the 1951 level, 116/ which would make the combined invest-
ment estimate 17.2 billion rules in 1945 prices. In2brmation with
regard to the level of capital investment in the coal and petroleum
industries separately is not available for 1952.
The 1953 plan Fulfillment report did not mention investment in
the coal and petroleum industries except to state that the, investment
plan for completing Indus+,rial instal]a tions~was considerably under-
fulfilled both by the Ministry of the Coal Industry and the Ministry of
the Petroleum.Industry. 117/ The fulfillment report for the first 6
months of 1953, however, stated that investment in the "fuel industry"
was 2 percent greater than during the corresponding 6 months of 1952. 118
It is not known whether the "fuel industry" in the report for the first
6 months of 1953 is strictly comparable to the "coal and petroleum in-
dustries" of +,he earlier reports. However, the Soviet authorities have
used the term "fuel industry" with reference to the coal and petroleum
industry in other contexts; for example, during the period 24 January
1939 to 12 October 1939, the coal and petroleum industries were com-
bined in the All-Union Peoples''Commissariat of the Fuel Industry. 119/
tdo organizational changes are known to have occurred in 1953'?that wo~u d
account for a change in the reporting of investments in these industries.
It is assumed therefore that the term "fuel industry"~ refers to the coal
and petroleum industries, and further, that the increase in investment in
the coal and petroleum industries for the year 1953 was at the same rate
as irvestment iri the first 6 months of 1953.
The latter assumption appears to be reasonably valid For the in-
dustrial sector of the Soviet economy as a whole, although it is less
Drell founded with reference to any particular industrial sector. Total
investments in the national economy in 1953 were reported to have in-
creased by 4 percent over the corresponding periods of 1952 in both
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i
the 6-month report and the annual report. The only sectors of invest-
ment for which information was published in both the annual and the 6-
month reports were light and food industry, cultural and service con-
struction, and housing construction. The increase in investment in the
light and food industries was reported as 8 percent in both the 6-
month and the annual report.# Cultural and service construction was
reported as 22 percent greater than in 1952 in the annual report, while
the 6-month report stated that various segments of cultural and service
construction had increased from 16 to 30 percent over the corresponding
period of 1952. Housing construction was reported as having increased
by 11 percent in the annual report and by 7 percent in the 6-month
report. The magnitudes of the increases in investment in these sectors,
as stated in the 1953 annual report, and the relative importance of
these sectors in total investment suggest that the level of investment
in the unreported sectors was. approximately at the rate of the first
6 months of 1953? On the basis of the assumptions noted above, the
combined investment in the coal and petroleum industries in 1953 would
amount to 17.6 billion rubles in 1945 prices. Of course, this estimate
is considerably more conjectural in nature than the estimates for pre-
ceding years.
Nothing is known concerning the level o? investment in the coal
industry in 1952 and 1953.except that the investment plan was. not ful-
filled in either year. 121 Fragmentary information relating to invest-
ment in the petroleum industry in 1952 and 1953 would indicate that in-
vestment in that industry probably increased at a faster rate than the
~ The annual report for 1953 stated that "state capital investments in
the construction o? light and food industries during 1953 exceeded the
preceding years capital investments by 8 percent,'while in the second
half year ,capital investments increased by 10 percent, in comparison
with the corresponding, period for 1952." This statement is clearly
inconsistent with the statement in +,he fulfillment report for the first
6 months that investment in the light and food industries in the first
6 months of 1953 exceeded the level of the corresponding period of 1952
by 8 percent. This is the only significant example of internal in-
consistency found in Soviet investment announcements. 120
-50-
S-E-C-R-E-T
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S-E-C-R-E-T
rate of increase of investment in the coal and petroleum industries
combined in those years. The production of "oil equipment" was re-
ported to have increased by ~1{ percent in 1952 and 17 percent in 1953
over the preceding year's production. 122/ The volume of construction
and assembly work completed by construction organizations of the Ministry
of the Petroleum Industry in 1953 was reported to have been 12 percent
above the 1952 level. 123/ Operational drilling was reported to have
increased 5 percent anc~exploratory drilling 10 percent in 1953 over
1952. 124/
In April 19511, the I~tinister of the Coal Industry, A.F. Zasyadko,
stated that the volume of investment planned by his ministry for 19511
amounted to about ].!a billion rubles. 125 As noted above,# the 6-month
plan fulfillment report for 1954 stated that investment in the coal in-
dustry exceeded the level of the corresponding 6 months of 1953 by
23 percent. At the same time, it stated that the Idinistxq of the Coal
Industry had not fulfilled the investment plan for the first 6 months
of 19511, leading to the speculation that the planned increase was pro-
bably in the neighborhood of 30 percent. If the planned increase in'1954
is assumed to be 30 percent, then the actual 1953 investment in the coal
industry was about 10.8 billion rubles in current prices (or about 8.h
billion rubles in 191!5 prices). This is approximately the same level of
investment, in real terms, that was estimated for the coal industry in
1951 (see Table 13?x+).
If this 1953 estimate for investment in the coal industry is sub-
tracted from the combined estimate of investment in the coal and petro-
leum industries in 1953 (see Table 13~), it leaves 11.6 billion rubles in
current prices (or 9.0 billion rubles in 1945 prices) for investment in
the petroleum industry in 1953. This would indicate a real increase of
about 15 percent in inrvestment in the petroleum industry between 1951
and 1953. The imrestment estimates for the coal and petroleum industries
in 1953, so derived, are considered much too tenuous for inclusion
in the tables. The indicated increase of about 15 percent in
investment in the petroleum industry between 1951 and 1953 appears
to be on the low side in view of the other information available. The
estimates are probably good enough, however, to support the conclusion
that investment in the petroleum industry in 1953 was greater than the
investment in the coal industry in that year. In view of this and the
great exertions made to increase investment in the petroleum industry
# P. 37.
~' P. 33, above.
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in recent years, it seems very likely that the 1954 investment plan for
the petroleum industry calls for a greater volume of investment than the
11: billion rubles planned for the coal industry. Further research should
be able to clarify the course of investment in the coal and petroleum
industries in 1952 and 1953.
H. Reliability of the Estimates.
The best check on the reliability of the estimates is the. 19511
investment plan for the Plinistry of the Coal Industry. No gross in-
consistency is apparent between the planned 1954 investment of 11r billion
rubles and the 11.7 billion rubles estimated for the coal industry in
1951. In view of this, the range of error should not exceed plus or
minus 20 percent for the coal industry estimates and plus or minus 30
percent for the petroleum industry estimates.
V. Investment in the Metallurgical, Industry.
A. Coverage of the Estimates.
The term "metallurgical industry" refers to the ferrous and
nonferrous metallurgical branches of industry. The metallurgical in-
dustry is substantially identical in coverage with the NB.nistries of
Ferrous and IQon?errous 14etallurgy. The principal differences in coverage
are the followings
1. The metallurgical industry does not include iron ore and
manganese ore mining, both of which are under the Iti nistry of Ferrous
Ptetallurgy. It does, however, include all nonferrous ore mining with
the exception of manganese. 126/ Some impression of the relative
magnitude of investment in iron ore and manganese mining may be
obtained from estimates of the Fixed capital stock of Soviet industry
in 1940. It is estimated that the productive fixed capital stock
in iron ore and manganese mining in 19110 was about 5 percent of the.
productive fixed capital stock of the. Ferrous and nonferrous metal-
lurgical branches of industry. 127
2. The metallurgical industry includes all plants primarily
engaged in processing ferrous and nonferrous metals. A substantial
portion of basic, processed ferrous metals, about 20 percent of-the
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total, is .produced outside of the jurisdiction of the Ministry of
Ferrous Metallurgy. It is estimated, however, that less than 10
percent of the total investment in ferrous metallurgical processing
capacity in the postwar years was in plants not belonging to the
Ministry of Ferrous Metallurgy. A11 of the significant produc-
tion of basic nonferrous metals in the USSR f a11s within the
Ptinistxy of Nonferrous I?!etallurgy, frith the important exception of the
rolling and drawing of aluminum and magnesium, which is under the
Iti.nistry o? the Aviation Industry. Ido estimate is available of the.pro-
portion of'the total postwar irnestment in nonferrous metallurgy made
in plants outside the jurisdiction of the Iinistry of Nonferrous
Metallurgy. Investments in the ferrous and nonferrous branches of
industry are shown in Table 21.
19b6-53
Billion
Rubles
1945 Pric
es
Curr
ent Price
s
Total
Total
Non-
I?tetal-
Idon-
Metal-
Period
Ferrous ferrous
1_~
Ferrous
ferrous
1~
1946-50 (Plan)
27.0 12.0
39.0
1d.A.
N.A.
N.A.
19116
3.8 N.A.
N.A.
L.0
N.A.
N.A.
1947 (Plan)
11.9 2.2
7.1
N.A.
N.A.
N.A.?
19h7
3.4 1.5
4.9
3.8
1.7
5.5
19118
N.A. I4.A.
6.11 ,
N.A.
N.A.
7.1
1949
N.A. N.A.
7.5
N.A.
N.A.
11,0
197x0
N.A. id. A.'
8.7
Id. A.
PI. A.
12.3
1951
Id. A. Id. A.
10.5
IJ.A.
N.A..
7.)1.4
1952
N.A. N.A.
11.6
Id.A.
N.A.
15?b
1953.
Id.A. N.A.
12.5
Id. A.
N.k.
16.1
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B. Investment Trends.
Investment in the metallurgical industry in the postwar years has
been a fairly constant proportion of total .investment (about 8 to 10 per-
cent), and no sharp changes in investment allocations to the metallurgical
industry occurred during this period (see Table 22). Of the total planned
investment in the metallurgical industry in the Fourth Five Year Plan,
']0 percent was for ferrous metallurgy and 30 percent for nonferrous
metallurgy. In the Fifth Five Year Plan nonferrous metallurgy is to
expand at a considerably faster rate. than ferrous metallurp~. This is
indicated by the comparison of planned output goals in the Fourth and
Fifth. Five Year Plans shown in Table 23.-~ In the Fifth Five Year Plan,
a. Based on the metallurgical industry investment estimates in Table
21 and the estimates of total investment and total investment in in-
dustry found in Table k, p. ]1,, above.
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investment in the metallurgical industry xill probably be divided
appro~dmately 60 percent to ferrous metallurgy and Iy0 percent tc. non-
ferrous metallurgy. Some support is given to this estimate by the
housing construction plan for the metallurgical industry during 1951-
55, under which 5 million square meters is to be constructed for xorkers
in ferrous metallurgy and about 3 million square meters for workers
in nonferrous metallurgy. 128 This is a ratio of about 60 percent to '
!~0 percent.
Planned Increases in the Production of Certain Metals in the IISSR
under the Fourth and I~fth FYve Year Plans
Planned 1950 as Planned 1955 as
Percent of Actual Percent of Actual
1945 Production 129 1950 Production ~
Pig Iron
217
176
Ingot Steel
206
162
Rolled Steel
21r5
164
Nonferrous
Copper
160
190
Aluminum
200
260
Lead
260
270
Zinc
250
250
Tin
270
180
Nickel
190
153
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C. Investment Program, 1954.
The.6-month fulfillment report for 195l~ stated that invest-
ment in the ferrous metallurgical .industry was 3 percent greater than in
the .corresponding period of 1953. 131 It also stated that both the
Iiinistry of Ferrous Metallurgy and'the Ministry of.Idonferrous,Metal-
lurgy failed.to'fulfill the investment plan-for the first 6 months of
1951. Since no information is available with regard to the 195t~ in- .
vestment plan for ferrous metallurgy, it is difficult to assess the
degree of under?ulfillment reflected in the very small increase re-
ported for investment in that industry. According to estimates that
have been made .of the capital requirements necessary to fulfill the
Fifth Five Year output goals in ferrous.metallurgy~, however, an 11-
percent increase in investment in ferrous metallurgy is required in
1954..HE In view of this it is concluded that the 3-percent increase
in investment reported for ferrous metallurgy in the first 6 months
of 1954 reflects either a downward revision of investment plans for that
industry or, more probably, a substantial underfulfillment of the plan.
Dio attempt will be ride to develop capital-output ratios for.
the .metallurgical industry in this report. There is, however, a con-
siderable amount of information which indicates that the capital-
output ratio is declining in the ferrous metallurgical industry of
the USSR. Despite the fact that the Fourth Five Year Plan for ex-
panding productive capacity in ferrous metallurgy was only about 70
to 75 percent fulfilled, the output plan was fulfilled. This eras
possible because the actual increase in effectiveness of the utilization
of capacity was substantially greater than the planned increase..133~
That such an underestimation occurred is borne out by a recent Russian
article which .criticized the "underrated planrLing" of "assignments for
utilization of productive capacities in certain branches of industry,
primarily ferrous metallurgy and the chemical field" during the Fourth
Five Year Plan.. 134 Such "underrated planning," the article states,
"forces the state to set aside, out of the total available resources
'._ ;lore precisely, the estimated capital requirements are based on
CIA's forecast o? 1955 production, which is slightly below the Fifth
Five Year Plan goals.
-~ Estimate based on 1 2 .
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of the country, a certain amount of additional and uncalled for re-
sources for the construction and expansion of capital equipment and
stock for the particular branch involved, to the detriment of other
branches of industry and'the entire national econotgyy."
The Soviet authorities planned a substantial decline in the
capital-output ratio in ferrous metallurgy in the Fifth Fine Year
Plan. The bulk of the planned increase in.the'output of ferrous
metals was to result from the more effective utilization of existing
plant aryl equipment and a lesser role in increasing output was to be
played by meta capacity to?be constructed. 135/ It appears, however, .
that the Soviet planners made the opposite mistake in the Fifth Five
Year Plan and overestimated the increase in effectiveness of the
utilization of capacity that could be: achieved.. It is believed that,,
in order to meet the Fifth Five Year Plan goals, larger than planned
increases in new blast furnace and steel smelting capacity'wil_1 have
to be made. 136/ ?
E. Structure of Investment.'
In addition to nonproductive investments, the estimates of
investment in the metallurgical industry include investments in non-
ferrous ore mining (except manganese). Some information is available
iahich throws some lirht on the relative importance of these elements
in total investment in the industry. In 1949 more than 1 billion
rubles was allocated for construction of housinE in the 1linistry of
metallurgical Industry. The plan was probably underfulfilled, since
in the first 6 months only 27.4 percent of the planned construction
lead been completed. 137 The head of the Housing and Public Services
Department of the Central Committee of the t?etalworkers' Trade Union
reported that more than 3 billion rubles had been allocated for in-
creasing housing for workers in the metallurgical industry during
1948-5D. He stated; hrn~rever, that the funds had not been fully
utilized. 138/ The planned investments in housing construction
during the 1948-50 period amounted to about 8 to 9 percent of the
estimated total investment in the metallurgical industry during that
period. Since the housing plan eras not Fulfilled, housinn probably
constituted only about 6 to 7 percent of t'.ie estimated total invest-
me7t during the 1948-50 period. On the assumption that housin; con-
stituted 80 percent of total nonproductive investments, total non-
productive investments ;rould account for 'abou't 8 to 9 percent of
total investment in the metallurgical industry during this period.
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Some impression of +,he share of total investment in the non-
ferrous me+allurgical industry going ihto ore mining may be obtained
from estimates of the Fixed capital stock o? Soviet industry in 19110.
It is estimated that in 19110 ore mining (excluding manganese) accounted
for about 25 percent o? total productive fixed capital in the non-
ferrous metallurgical industry. 139/
F. A Capital Coefficients Aooroach.
A recently completed report on the production of ferrous
metallurgical equipment in the USSR provides a basis for testing the
validity of the investment. estimates for ferrous metallurgy. Estimates of
the annual dollar value o? Ferrous metallurgical capacity placed in oper-
ation durin; the nosttrar }+ears mere derived by applying US capital
coefficients to the estimated physical capacities placed in operation
in each year. !See Table 24.)%> These estimates of the annual value
of capacities placed in operation Caere converted into an index and
compared with an index of the estimated annual investment in ferrous
metallurgy (see Table 25~ and Fig? 4%~%~). The index of annual investment
in ferrous metallurgy is based on t$e investment estimates for ferrous
metallurgy in 19116 and 19117 and on the assumptions that ferrous metal-
lurgy accounted for 70 percent o? the total investment in the metal-
lurgical industry during the 191x7-50 period and 60 percent of the total
during the 1951-53 period. The index of the annual value of capacities
placed in operation is based on a moving average o? the value of
capacities placed in operation during the index year and the following
2 years. For example, +.he 19118 index is based on the average of the
value of capacities placed in operation in 1948, 19119, and 1950. The
index was formulated in this manner to take into account the time lag
between investment and the placing into operation o? new productive
capacities and thus place the two indexes on a more comparable basis.
The indexes show that, from the standpoint of their movements
during the postwar years, the estimates of annual investment in ferrous
metallurgy durin; the postwar ,years are consistent with the estimates
o? the annual value o? capacities placed in operation. The movements
of the two indexes are similar during the 19117-51 period but diverge
somewhat in 1952 and 1953? A possible explanation for this divergence
is that the assumed allocation of 60 percent of the total investment
~ Table 24 follows on p. 59.
'=~ Table 25 follows on p. 60.
r-~ Following p. 60,
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in the metallurgical industry to ferrous metallurgy is too high. If
different time lags were used, the index of the value of capacities
placed in operation would not parallel the index of investment quite
as closely as in Figure 4.~' The differences would not be very sub-
stantial, hoorever, and. the conclusion that the movement of the indexes
are consistent would not be altered.
Estimated 4alue of Ferrous Metallurgical Capacity
?laced in Operation in the USSR
1946-55
a. .Capital coefficients in US 19 2 dollars. 1 0 Reconstructed units
were arbitrarily valued at 50 percent of the value of new units.
The estimates of the value o? capacities placed in operation can
also be used as a rough check on the estimated absolute values of in-
vestment. The total value of ferrous metallurgical capacities placed in
operation during the Fourth Five Year Plan period is estimated at about
US X3.6 billion in 1952 prices. The estimated investment in ferrous
metallurgy during the Fourth Five Year Plan period, on the assumption
that ferrous metallurgy accounted for 70 percent of total investment
in the metallurgical industry during 19Lt8-50, is 30.6 billion nibles.
# Following p. 60;
S-E-C-R-E-T
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in 1952 prices. If 8'percent of this total aras in nonproductive
investments, then productive investments would be 28.1 billion
rubles in 1952 Prices. If a ruble-dollar conversion factor .of 8 '
to 1 is- assumed to be appropriate, this estimate of productive
investments would be consistent with the TJS X3.6 billion estimate of
capacities placed into operation. No ruble-dollar price'stuaes are
available for ferrous metallurgical processing capacity. ftowever, a
1952 ruble-dollar ratio of 8 to 1 does not' appear to be unreasonable
in view of the general information available on ruble-dollar ratios
for industrial equipment and construction. 143/
Indexes of Investment in Ferrous metallurgy and the Value
of Ferrous P~?etallurgical Productive Capacities Placed in Operation in the IISSR
1946-53
1946 = 100
Year
Investment in
Ferrous metallurgy a~
Three-Year Average
of the Value of Ferrous
I?etallurgical Productive
Capacities Placed in Operation
1946
loo
loo
1947
90
100
1948
118
116
1949
139
143
1950
_161
162
1951
166',
174
1952
184
170
1953
197
183
a. Based on the estimates in Table 21, p. 53, above. It is assumed
that investments in ferrous metallurgy accounted for 70 percent of
total investments in the metallurgical industry in the 1948-50 period
and 60 percent of the total iri the 1951-53 period.
b. Based on the estimates in Table 24. The index for each ,pear is based
on the average value of capacities placed in operation in that year and
the follovring 2 years.
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SECRET
USSR
INDEX OF ESTIMATED INVESTMENT IN FERROUS METALLURGY
COMPARED WITH INDEX OF ESTIMATED VALUE OF FERROUS
METALLURGICAL CAPACITIES PLACED IN OPERATION
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G.- Derivation of the Estimates.
The irroestment plan for the ferrous metallurgical industry
called for an investment of 4.9 billion rubles in 19117 and about 27
billion"rubles during 19lrb-50, both figures being stated in 19!15
prices. 1114 Twelve billion rubles in 194$ Prices were to be invested
in the no errous metallurgical industry during the 1946-50 period. 1115
A 19!17 figure for planned investment in nonferrous metallurgy is not
available. It seems probable, however, that planned investment in non-
ferrous metallurgy in 191r7 was appro~dmately the same proportion of .
planned investment in 19116-50 as was the case in ferrous metallurgy.
On this basis, planned investment in nonferrous metallurgy in 1947
is estimated at about 2.2 billion rubles in 1945 prices.
The 1947 investment plan was not fulfilled in either ferrous
or nonferrous metallurgy 11r6/, but the degree of underfulfillment was
not reported. Some information is available, however, on the degree.
of fulfillment of the plan for placing new capacities into operation
in ferrous metallurgy: The 19117 plan for ferrous metallurgy called
for placing in operation the following processing capacities. 1lr7
pig iron, 2.i million metric tons; ingot steel, 2.9 million me ric
tons; rolled steel, 3.6 million metric tons. The estimated capacities
actually placed in operation in 19117 are: pig iron, 0.8lr million
metric tons, or 110 percent of the planned capacity; ingot steel, 0.76
million metric tons, or 26 percent of the planned capacity;. and rolled
steel, 3.29 million metric tons, or 91 percent of the planned capacity.
To estimate the fulfillment of the plan for expanding ferrous
metallurgical capacity as a whole, figures ?or actual increases in
capacity by type of capacity were weighted both by the value o? equip-
ment required and by the man-hours required for erection.# .Based on
the value of equipment xeights, the over-all plan for placing new
capacities in operation was fulfilled by 69 percent; based on the
erection of man-hour weights, the plan coas also 69 percent fulfilled.
On the basis of this information, a 70-percent fulfillment of the
investment plan was assumed for ferrous metallurgy in 19117. In the
absence of acly specific. information relating to?the degree of under-
fulfillment of the investment plan for nonferrous metallurgy, it was
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assumed that the irroestment plan was fulfilled by the same percentage
as ferrous metallurgy. The 1947 estimates, so derived, are 3.4 billion
rubles for 'ferrous metallurgy and 1.5 billion rubles for nonferrous
metallurgy, both stated in 1945 prices. The total estimated 1947 in-
vestment in the metallurgical industry is 4.9 billion rubles in 1945
prices.
The planned investment in ferrous metallurgy in 1947 of 4.9
billion rubles in 1945 prices was reported to be 30 percent greater
than the actual 1946 investment. ].119/ This would mean that the actual
investment in 19116 was 3.8 billion rubles in 19115 prices. No information
is available regarding investment in nonferrous metallurgy in 19116.
The estimated investment in ferrous metallurgy in 19116 is about
10 percent greater than the estimated investment in 19!17. The decline
in investment in 19117 is supported by the estimates of the value of
capacities placed in operation (see Table 24), which show that the value.
of capacities placed in operation in 1947 was about 18 percent less than
the value of capacities placed in operation in 19116.
The 19118 estimate of 6.4 billion rubles in 1945 prices is based
on the report that investments in the metallurgical industry were 31
percent greater 'than in 19117. 150/ No separate investment information
on the ferrous and nonferrous metallurgical industries is available for
19118 or for ax~y subsequent year. Percentage increases in investment
since 1947 have been reported only ?or the metallurgical industry as
a whole. It was reported, however, that the 19118 capital investment
plan for the Ministry of Nonferrous Metallurgy provided a considerable
increase over the actual 1947 investment. 151
The estimated irvestment in the metallurgical industry in 1949
is 7.5 billion rubles in 1945 prices. It is based on the report that
in 19119 investment in the metallurgical industry was 18 percent greater
than in 1948. 152/ It seems probable that the 19119 plan for investment
in the metal! g cal industry was underfulfilled. The Ministry of Con-
struction of Heavy Industry Enterprises, which devotes a large part of
its efforts to the construction of plants for the Ministries of Ferrous '
and Nonferrous Metallurgy, was reported as having increased its volume
of capital construction over 1948 but as having underfulfilled the
1949 plan. 153/
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The 1950 estimate of 8.7 billion rubles in 1945 Prices is based
on the report that investments in ferrous and nonferrous metallurgy in
1950 were 16 percent greater than in 1949. 154/
The estimates would indicate that the investment plan for ferrous
and nonferrous metallurgy during the Fourth Five Year Plan period was not
fn1fi11ed..The Plan called for a total investment of 39 billion rubles
in 1945 prices. The actual irr~estment is estimated at about 33 billion
rubles in 1945 prices, or about 85 percent of the planned volume. The
underfulfillment of the investment plan is supported by plant studies
of the ferrous metallurgical industry, which show that the planned in-
creases in capacities placed in operation during the Fourth Five Year
Plan were fulfilled by only 70 to 75 percent. 15$
The 1951 estimate of 10.5 billion rubles in 1945 Prices is
based on the report that investments in ferrous and nonferrous metal-
lurgy in 1951 were 20 percent greater than in 1950. 156/ The 1951 in-
vestment plans for the Ministries of Ferrous Metallurgy and Nonferrous
Metallurgy were not fulfilled. 157
The 1952 estimate of 11.6 billion rubles in 1945 prices is based
on the report that investments in ferrous and nonferrous metallurgy were
11 percent greater than in 1951. 158/
The 1953 plan fulfillment report stated that capital investments
in ferrous and nonferrous metallurgy were greater than in 1952, but that
the investment plan for completing industrial installations was not ful-
filled by the I4inistry of Metallurgical Industry. 159/ The plan fulfill-
nent report for the first 6 months of 1953 stated that the volume of
investment in the metallurgical industry was 8 percent greater than in
the first 6 months of 1952. 160/ This 8-percent increase was used in
estimating 1953 investment a~2.$ billion rubles in 1945 prices., (See
IV, G, above, for rationale for applying the 6-month percentage increase
to the entire year.)
H. Reliability of the Estimates.
The on7,y check on the validity of the estimates is their con-
sistency with the independently derived estimates of the value of capa-
cities placed in operation in ferrous metallurgy. In view of this
consistency, the range of error in the investment estimates should not
exceed plus or minus 30 percent.
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VI. Investment in the Light and Food Industries.
A. Coverage oY the Estimates. '
The investment estimates for the 'light and food industries
(Table'26)+~are derived from 'two different bases. 'The estimates for
the 1946-50 period are derived from the 1947 planned investment in the
light and food branches of industry. The estimates for the 1951-5l1
period are derived'from 1953-54 investment data for the Ministry of
the Foodstuffs Industry and the Ministry of the Manufactured Consumer
Goods Industry. The Ministxg oP the Foodstuffs Industry was split into
three Ministries in the reorganization of April 19511: The Ministry
of the Food Industry, the Ministry of the Meat and Dairy In-
dustry, and the Ministry of the Fish Industry. 161/ For convenience,
the former designation, the Miniatry of the Food~uffa Industxg,
will be used in this report to cover enterprises now under these
three Ministries.
The estimates of investment in the light and food branches of
industry in 1946-5o are not strictly comparable in coverage with the
1951-511 estimates of investment in the Ministries of the Foodstuffs and
Manufactured Consumer Goods Industries. The principal differences in
coverage are the following: (1) The branch of industry estimates ?or
19lr6-5o include investments in light and food enterprises subordinate
to Republic Ministries of Local and Fuel Industry. They may or may not
also include 'investments by industrial cooperatives. (2) The estimates
for 1951-511 include investments in machine-building plants and other
activities 'of the Ministries of the Foodstuffs and P'fanufactured Consumer
Goods Industries which would not be included as investments in the light
and food branches of industry. Among the investments in "other act-
ivities" would be investments in the 869 State farms under the juris-
diction of the Ministry of the Foodstuffs Industry. 162/
The information necessary to adjust the investment estimates
to a single, completely comparable basis is not available. The dif-
ferences in the coverage of the estimates, However, are probably not
substantial relative to the whole, and to some extent the differences
will offset each other. Fcr these reasons 'the-19116-50 investment series
will be considered to be substantially comparable with the 1951-511 series.
-~' Ta a follows on p. 65.
~ Sometimes referred to as the Ministry of the Consumers Goods Industry.
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.Investment in the Light and Food Industries in the IISSR
19l~6-53, 1946-50 .Plan, 1951-55 Plan, 1954 Plan
a. cept as noted.
b. 1945 prices.
c. Possibly 1950 planning prices.
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B. Investment Trends.
During the 1946-53 period, investments in the light and food
industries accounted for-from 4 to 6 percent of total investments and
from B to 12 percent of total investments in the industrial sector of
the economy (see Table 27). This represents a smaller share of in-
vestment allocations than the light and food industries received in
the prewar years.
Investment in the Light and Food Industries in the'USSR as Percentages
of Total Investment and Total Investment in Industry
191+6-53, 1954 Plan
a, Based on estimates of investment in the light and food industries
in Table 26 and the estimates of total investment and total investment
.in industry in Table 4, p. 1L~, above.
During the 1933-39 period, investments in the light and food
industries accounted for 6 to 7 percent of total investments and 14
to 23 percent of irroestments in the industrial sector of the econon8. 163/
The decline in the share of total investments allocated to the light
and food industries in the postwar years, coupled with the fact that
the industrial sector as a whole received a larger share of total
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investments during the postwar years, illustrates the extent of the
emphasis on the development of heavy industry during the postwar years.
Eben in the 1954 Plan, with its emphasis on increasing the output of
consumer goods, the share of total investments going to the light and
food industries will not exceed the normal prewar share of about 7
percent.
1. Decline in Investment in 1951.
The absolute decline in investment in the light and food in-
dustries in 1951 is very significant. The decline in irrvestment in the
light and food industries between 1950 and 1951 is estimated at 13 percent,
measured in constant prices. The exact extent of the decline is not firm-
ly established, but it seems certain that a decline did occur. The decline
of investment in the light and food industries in 1951 is one of a number
of adjustments in investment allocations that appear to have resulted from
the outbreak of war in Korea. The Korean war does not appear to have had
any marked effect on the level of total investment, but it did result in
a diversion of an increased proportion of the total to heavy industry.
The shift in the allocation of investment which began in 1951 was continued
into 1952. It is estimated that investment in agriculture declined by
about 7S percent between 1951 and 1952. 164 In 1952 investments in both
the light and food industries and agriculture are estimated to have been
below the 1950 levels, despite the fact that total investment is estimated
to have increased by more than 20 percent between 1950 and 1952.
2. Investment Program, 1953-54.
As noted above, the revision of the 1953 irroestment pro-
gram in midyear resulted in a substantial curtailment of the growth
of heavy industry. Yet, the actual increase achieved in investment
in the light and food industries was very .small. The 1953 investment
plan called for an increase of 24 percent in investment in the light
and food industries; the actual increase achieved was only 8 percent. 165
# See II, above.
t~ The 24-percent-increase figure was derived as follows. The planned
1953 investment in the light and food industries was 8.73 billion rubles.
The actual investment was 7.6 billion rubles, and this represented an 8-
percent increase over 1952. It follows that the planned increase was 24
percent (see pp. 71-72, below, for source references).
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This poor showing is undoubtedly attributable to. the bottlenecks
created by the midyear revision of the investment program. With
respect to the investment 'program of the light and food industries,
one of the more important bottlenecks appears to have been in the
production of specialized machinery for: those industries. It .was
reported, for example, that the IISSR Ministry of Pfachine Building
had supplied only about one-third of the assortment of light indus-
trial machinery scheduled for delivery during the first 9 months of
1953. 166
The plan fulfillment report for the first 6 months of 1954
stated that investment 'in the light. and food industries in the first
6 months of 19511 was 46 percent greater than during the corresponding
period of 1953. Although this represents a very substantial increase
over 1953, it is far below the rate of increase necessary to fulfill
the 1954 investment plan. It seems very unlikely that the planned
increase of more than 80 percent in investment in the light and food .
industries will be fulfilled.
C. Structure of Investment.
During the 1946-50 period, investment in the food industry was
allocated approximately as follows: fish industry, 28 percent;' meat and
dairy industry, 26 percent; other food industry, 46 percent. According
to the Tevised Fourth Five Year 'Plan, the allocation of investment in
light industry was to be as follows: textiles, 72 percent; other light
industry, 28 percent.
Based on these breakdowns and the estimates of investment for
.the light and food induatries~ the allocation of total investment in
the light and food industries during the Fourth Five Year Plan period
would be approximately as shown in Table 28.#
The distribution of investment between the light and food in-
dustries was altered in the Fifth Five Year Plan. The estimates in-
dicate that investment in the Fourth Five Year Plan period was divided
approximately 35 percent to light industry and 65 percent to the food
industry. In the Fifth Five Year Plan the. allocations of investment
to the light and food industries will be approximately equal.
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Table 28
Percentage Distribution of Investment in the Light and Food Industries
in the iSSSR under the Fourth Five Year Plan
Nonproductive investments are estimated to account for about
].!t percent of total investments in light industry during the 19b6-50
period, 19 percent during the 1951-53 period, and 22 percent in the
195lr Plan (see Table 29).# In the food industry, nonproductive in-
vestments are estimated to account for 12 percent of total investment
in 1953 and 18 percent in the 1954 Plan. Most of the estimates of
nonproductive investments by the light industry are based on the'
following statement by A.N. Kosygin, Minister of the Manufactured
Consumer Coods Industry, in Pravda, 15 November 1953: ]b 7
As a result of the continuing concern of the
Communist Party and Soviet Government for a constant
improvement in the material well-being of our coun-
tryrs working people, the housing stuation'and
working conditions of textile workers and all workers,
'engineers, technicians, and light industry employees
'~ are being improved.
Housing construction grants are increasing yearly.
During the Fourth Five Year Plan about 1,000,000,000
rubles were invested in housing construction, and
1,Lr00,000,000 rubles have been so invested during the
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3 years of the current Five Year Plan. In 3 years
alone our industrial workers have received about
1,000,000 square meters of floor space as against
1,300,000 square meters during the entire Fourth
Five Year- Plan.
The government has laid great tasks in housing
construction before us. Housing construction grants
for 1954 total more than 1,000,000,000 rubles, which
exceeds grants for such construction for the enure
Fourth Five Year Plan. Next year we are to provide
685,000 square meters of floor space, or almost 50
percent. more than has been opened to tenancy this
year.
The 1.4 billion ruble figure for investment in housing construc-
tion in light industry during 1951-53 probably represents the actual
1951-52 investment and planned investment in 1953. It was later announced
that the housing plan for the Ministry of the Manufactured Consumer
Goods Industry, which called for the construction of 444,000 square meters
of housing, was underfulfilled by 100,000 square meters. 168/ -The es-
timate of investment in housing for 1951-53 was, therefore, adjusted
to 1.3 billion rubles.
In 1953, housing construction by the Ministry of the Foodstuffs
Industry was to exceed 500,000 square meters, but the plan was only
73.4 percent fulfilled. 169/ It was reported that 1.5 billion rubles
would. be invested in housing and service construction in 19$4 by the
Ministry of the Foodstuffs Industry. 170/
The estimates of nonproductive investments in the light and food
industries, found in Table 29, were derived by multiplying the estimates
of investment in housing by 125 percent to reflect other nonproductive
investments. No adjustment of the 1954 Plan figure for the Ministry of
the Foodstuffs Industry was necessary. Where the housing information
was given in square meters rather than in rublest a value estimate for
housing t-as derived by applying the factor of 1,400 rubles per square
meter.
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Investment in the Light and Food Industries in the IISSR
Excluding Nonproductive Investment
1946-53, 1953, 1954 Plan
Period
Total Investment
Nonproductive
Investment
Total Invest-
ment Excluding
Nonproductive
Innvestment
1953 Plan)
4.8
0.6
4.7
195lr (Plan)
8.5
1.5
7.0 '
D. Derivation of the Estimates.
In connection with the. new consumer goods program, the Soviet
authorities announced the actual 1953 investment and planned 195lr in-
vestment by the Ministries of the Foodstuffs Industry and the Manu-
factured Consumer Goods Industry. The combined investment by these
Ministries in 1953 was 7.6 billion rubles. 171/ Of this total, 4.8
billion rubles was invested by the Ministry of the Foodstuffs Industry
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and 2.8 billion rubles was invested by .the Ministry of Manufactured.
Consumer Goods. The latter estimates are derived from the announcements
that planned 19$3 investment in the Ministry of the Foodstuffs Industry
was $.63 billion rubles 172 and that this plan was underfulfilled by
1$.3 percent. 173 The planned investment by the Ministry of Manu-
factured Consumer Goods in 1953 of 3.l billion rubles was underfulfilled
by 9.6 percent. 174
Imrestment planned for 19$4 amounts to $.9 billion rubles for
the Ministry of Manufactured Consua~r Goods and 8.$ billion rubles for
the Ministry of the Foodstuffs Industry, malting a total for the light
and food industries under Union jurisdiction of 7.11.4 billion rubles. 17$ .
The total investment estimate of 7.0 billion rubles for 19$2 in
19$3 prices is derived from the announcement that capital investment in
the light and food industries in 1953 was 8 percent greater than in
19$2. 176 Similarly, the 19$1 investment estimate of 6.4 billion rubles
in 19Sj Prices is derived from the announcement that capital investment
in the light and food industries in 19$2 was 9 percent greater than in
19$1. 177 1'he Soviet authorities announced that 8.$ billion rubles were
invested in the food industry in 19$1 and 19$2. 178, This figure was
adjusted for price level changes for inclusion in able 26.
The estimates for the period 1946-$0 are not as well established
as the estimates for 19$1=$4; and, as explained earliert they are not
strictly comparable with the 19$1-$!~ estimates. The 1946-$0 estimates
cannot be.directly linked to the 19$1 estimate, because information re-
lating the volume of investment in 19$1 to the, volume of investment in
19$0 is not available. The estimates for 19116-$0 are based on the
following information: (1) planned investment in the light and food
industries in 1947; (2) percentage increases in investment for the sub-
sequent years;. (3) actual investment in the food industry during the
period 1946-$0; and (4) planned investment in light industry in 1946=$0.
Planned investment in the light and food industries in 1947 was
3.3 million rubles in 1911$ Prices. 179 Of this total, 1.8 billion
rubles was allotted to light industry and the remaining 1.$ billion
rubles was. allotted to the food industry.. 180 The only fact that is
known with. regard to the fulfillment of this plan was that the Ministry
of Light Industry, which had been allocated 600 million rubles of the .,
total of 3.3 billion rubles, fulfilled the -investment plan by $$.4
percent. .181 For reasons which:shall be discussed later, it is ,
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assumed that planned investment in the light and food industries as a
whole was fulfilled in 1947. The 1947 estimate converted to 1953
prices would amount to 4.3 billion rubles. '
The 1946 estimate for investment in the light and food'indus-
tries is 3.3 billion rubles in 1953 prices. It is based on the announce-
ment that investment in the light and food industries in 1947 was 30
percent greater than in 1946. 162 The 1948 estimate of 'S.7 billion
rubles in 1953 prices is based on the announcement that the volume of
capital work in the light and food industries in 1948 was 32 percent
greater than in 1947. 183 ?
No information is available regarding the 1949 level of in-
vestment in the light and food industries combined. The plan fulfill-
ment report stated that investment in the food industry was 21 percent
greater than in 1948: 184 However, the fulfillment report for the
first 9 months of the year stated that investment in the light and
food industries was 13 percent greater than in the corresponding 9
months of 1948. 185 The decision to report only investment for the
food industry in a annual plan fulfillment report indicates that the
volume of investment for the light and food industry combined rras prob-
ably less than 21 percent, although it may have been higher than the
13-percent increase reported for the first 9 months of 1949. A 17-per-
cent increase is used in estimating the 1949 volume of investment at 6.7
billion rubles in 1953 prices.
The 1950 estimated investment of 7.4 billion rubles in 1953
prices is based on the statement that investment in the light and food
industries was 10 percent greater than in 1949. 186
Investment in the light and food industries is estimated to
have declined by about 13 percent between 1950 and 1951 measured in
constant prices. The precise magnitude of the decline cannot be firmly
established, but it seems certain that a decline did occur. The year
1951 was the only postwar year for which the Soviet authorities failed
to announce the level o? investment in the light aril food industries as
a percentage of investment in the preceding year. This fact alone, in
view of the reluctance of the Soviet authorities to report declines in
ar~pthing, would indicate that the absolute level of investment in 1951
may have been less than in 1950. The contention that investment in the
light and food industries was reduced in 1951 is supported by the esti-
mate, cited earlier, that there was also a reduction in investment in
agriculture, although the latter did not occur until 1952.
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The declines in investment in the light and food industries and agri-
culture in 1951 and 1952 appear to be consequences of a readjustment of
the investment plan following the outbreak of war in Korea.
The weak links in the analysis supporting the 1946-50 estimates
are as follows: (1) the absence of any information relating the level
of investment in 1951 to the level of imrestment in 1950; (2) the
assumption of plan fulfillment in 1947; and (3) the assumption of a 17-
percent increase in investment in 1949. Certain additional information
will throw some light on the validity of the assumptions used.
It was reported in 1953 that investment in $he food, meat, dairy,
and fish industries during the postwar years was 26 billion rubles and
that investment in these industries in 1951 and 1952 was 8.5 billion
rubles. 187 Thus, investment in these industries during 1946-50 was
17.5 bil ion rubles. In 1950 the Deputy Minister o? the Ministry of the
Food Industry (which at that time did not include the meat, dairy, and
fish industry) stated that investment in the Ministry during the Fourth
Five Year Plan exceeded 8 billion rubles. 188 It was later announced
that 7.4 billion rubles had been invested in the fish industry between
1946 and 1952.,189 If the same proportion of the total investment in
the fish industry is allocable to the years 1951-52 as was the case in
the food industry as a whole, then investment in the fish industry in
1946=5o would amount to about 5 billion rubles. This :.ould leave about
4.5 billion rubles for investment in the meat and dairy industries
during the Fourth Five Year Plan period.
It is not known whether these figures are stated in planning
prices or in current prices. During 1945-48, investments were planned
in prices which prevailed on 31 December 1945. In 1949 and 1950 in-
vestments were planned in current prices. 190 Since 1951, investments
have been planned in l July 1950 prices. 191 The use of planning prices
would slightly understate investments during 1946-48 relative to later
years and would overstate investment during the 1951-52 period relative
to 1949 and 1950. It shall be assumed that the 26 billion ruble Figure
for investment in the food industry during the 1946-52.period and the
8.5 billion ruble figure for investment in the food industry in 1951
and 1952 are stated in current prices.
The estimates for investment in the light and food industries
during 1946-50 in current prices total 2.7 billion rubles. Subtracting
the 17.5 billion rubles for investment in the food industry (which is
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assumed to be in current prices) leaves 9.$ billion rubles for invest-
ment in light industry during the period 1946-$0.
In the original Fourth Five Year Plan, about 8 billion rubles
in 194$ Prices was to be invested in light industry. 192/ The plan was
increased to 10.2 billion rubles in 194$ prices in 19~ 193/ If the
10.2 billion ruble figure in 194$ prices were. adjusted to reflect the
price levels that Prevailed during the Fourth Five Year Plan period, it
would amount to about 13 billion rubles. The comparison of this figure
? vri th the 9.$ billion ruble estimate derived in the preceding paragraph
indicates. that the revised plan for investment in light industry during
the Fourth Five Year Plan was only about 7$ percent fulfilled. After
adjusting for price level changes, the 9.$ billion ruble estimate would-
indicate the approximate fulfillment of the originally planned irroest-
ment of 8 billion rubles in 194$ prices.
Information is not available concerning the fulfillment of the
investment plan for light industry during the Fourth Five Year Plan.
However, the plan for housing construction to be undertaken by light
industry is known to have been grossly underfulfilled. The I?tinistry
of the Textile Industry announced planned investment in housing of 1.6
billion rubles in ?194$ prices during the Fourth Five Year Plan. 194/
In 19$3, in reference to the Ministry of the Manufactured Consumer
Goods Industry, which combined the Former Psinistries of Textiles and
Light Industry, it was stated that only about 1 billion rubles were
irroested in housing during the Fourth Five Year Plan.
This would indicate that investments in housing construction con-
stituted about ll percent of the total estimated investment in light in-
dustry during 1946-$0. This percentage does not appear to be unreason-
able. In 19$1-$3 housing accounted for approximately 1$ percent of the
total investment in light industry. In 1953 it accounted for about
18 percent. In the 19$4 Plan, housing is to account for about 17 percent
of irroestment in light industry. Zt would seem logical to expect that
in the years of the Fourth Five Year Plan, when the Soviet authorities
were not concerned about shifting labor into the consumer goods industries
and when much less emphasis was placed on housing construction in gen-
eral, a considerably smaller proportion of total investment in those'
industries would take the form of housing for workers.
-75-
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The assumption of plan fulfillment in 1947 and the assumption
of a 17-percent increase of investment in 7949 used in producing the
estimates for the years 1946-50 would, in the absence of additional
information, appear to be on the high side. The initial assumptions
used, a 10-percent underfulfillment in 1947 and a 13-percent increase
in 1949, produced a total investment estimate for the light and food
industries during 1946-50 of 23.8 billion rubles in current prices.
Subtracting the 17.5 billion rubles for the food industry left 6.3
billion rubles for light industry. This figure seemed unreasonably
low, and therefore the more liberal assumptions were substituted.
The use of the more liberal assumption for 1947 is also
supported by the change in the treatment of "extra-limit" investments.
In 1950 and possibly in 1949,"extra-limit"investments were included
in the State investment plan. Before that time, although they were
planned in the aggregate, they were not included in the published in-
vestment data. This element of incomparability in the series would
have the effect of understating investment in 1948 and earlier years
.relative to investment in later years. For example, although the
centralized investment plan in 1947 may have been underfulfilled by
the light and food industries, the underfulfillment may have been off-
set by'~xtra-limit" investments undertaken in that year. ?Since the
investment estimates for 1948-50 are derived from the 1947 estimate,
they would thus be understated relative to the 1951-53 estimates, which
include'bxtra-limit" irvestments.#= For the industrial sector of the Soviet
econotgy as a whole, "extra-limit" investments have been of negligible
proportions. For example, in the 1937 Plan "extra-limit" investments
constituted 2.2 percent of centralized investment in industry; in the
1939 Plan the corresponding percentage was 5.1 percent. .195 however, the
following statement, from Narodno a k~hozyaa,,stvo,~1947, indicates that
they probably constituted a sign ican~tion o? investment in the
light and food industries in the early postwar years:
In addition to centralized investments, large
noncentralized capital investments will take place,
~ It would be more accurate to say that the category !'extra-limit"
investments was eliminated in 1950 or 1949. Far present purposes the
important difference is that they-are noon included in published in-
vestment figures, whereas formerly they were not.
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directed first of all toward housing and cultural
construction, agriculture, and also to the con-
sumer goods industry. 196/.
Some information has been published on investment in the light
and?food industries in the Fifth Five Year Plan. It was reported that
investments in the food industry in the Fifth rive Year Plan were to be
1.6 times the amount imrested during the Fourth Five Year Plan period. 197
Applying this to the 17.5 billion ruble estimated inrvestment in 1946-50.
results in a Fifth rive Year Plan Figure of 28 billion rubles.
It roras also reported that investments in the Ministrg of t4anu-
factured Consumer Goods were to be 2.5 times as much as investment in
the Fourth Five Year Plan. 198 Applying this to the planned invest-
ment of 10.2 billion rubles during the Fourth Five Year Plan results
in an estimate of 25.5 billion rubles for the Fifth Five Year Plan.
This. figure looks reasonable in view of the following statement made
by the Minister of the Manufactured Consumer Goods Industry on 15
November 1953: 199/
The rfinistry of r'43nufactured Consumer Goods In-
dustry, USSR, must prepare for a sharp increase in
capital construction and in the next 2 or 3 years
put greater industrial capacity into use. At present,
the USSR P?ti.nistry of Manufactured Consumer Goods
Industry is building, at an estimated cost of more
than 20 billion rubles, 1r00 super-limit projects
~rojects costing above a certain amount to construct,
which must be approved by the Council of Ali.nisters,
USSR7. Already work in the amount of 9 billion
rubles has been completed on these projects. All of
these enterprises must go completely or partially
into operation in the next 2 years. In addition,
reconstruction and expansion of 800 enterprises is
going on. These fall into the category of sub-
limit approved by ministry construction.
It would be difficult to estimate the imvestment in 1955 that
will be required to fulfill the Fifth Five Year Plan for the light and
food industries, because the price level .reflected i.n the Fifth Five
Year Plan estimates has not been established. It is quite possible
that the statements with respect to the Fifth Five Year Plan figures
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reflect 1950 planning prices rather .than current prices.
E. Reliability of the Estimates.
The 1951-52 estimates, which were derived from the announced
1953 investment figure, should have a negligible range of error. The
1946-50 estimates,. however, are not so well founded. The estimated
range for the 1946-50 estimates is plus 30 percent and minus 15 per-
cent. The narrower downward part of the range is based on the con-
viction that, at most, investment in the light and food industries
in 1951 was no greater than investment in 1950.
VII. Investment in the Machine-Building and Construction Materials
Industries.
A. Coverage of the Estimates.
No ruble investment figures, planned or actual, are available
for the machine-building industry or the construction materials in-
dustry in the postwar years. For this reason only indexes of invest-
ment can be developed for these industries at this time.
The investment indexes in Table 30# refer to the machine-
building and construction materials branches of industry. The machine-
building branch of industry covers most of the enterprises in the
following ministries: Automobile, Tractor, area Agricultural Ma-
chine Building; Alachine and Instruments Building; Machine-Tool Industry;
Heavy Piachine Building; Transport Machine Building; Construction and
Road Machine Buildingy ana Electrical Industry. In addition, the
machine-building branch of industry also includes the machine-building
enterprises of other industrial ministries -- such as the enterprises
of the Ministries of the Ooal and Petroleum Industriesr which produce
coal mining and oil field equipment.
It is believed that the aircraft, shipbuilding,' and defense
industries are not included within the machine-building industry in
Soviet investment accounting. This is based on three pieces of evi-
dence. First, in the classification of branches of industry known to
have been in use in the postwar years, the machine-building industry
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is defined as including all enterprises primarily engaged in the pro-
duction of producer goods. 200 Secondly, in the Gosbank classif;cation
of accounts, the Ministries o Aviation, Shipbuilding, and Defense are
not included in the same category as the various machine-building mini-
stries. 201 Third~p, in the prewar breakdown of productive fixed
capital assets in Soviet industry there is a Targe miscellaneous re- .
sidual in the fixed assets of the metalworking industry. This
residual, which is completely separate from the machine-building in-
dustry and is labelled "general repair plants. and shops,'!'constitutes
such a large proportion of the total that it seems reasonably certain
that it includes defense industry enterprises. 202/
Indexes of Investment in the Machine-Building and Conatraction 2~iaterials
Industries in the USSR Compared with Indexes of Total Investment
and Total Inrvestment in Industry
Year
Machine
Building
construction
Materials
Total
Irroestment b/
Investment
in Industry
1947
87
N.A.
82
N.A.
1948
100
100
'100
100
1949
110
112
120
N.A.
1950
120
130
146
N.A.
1951
132
175
165
N.A.
1952
148
191
178
N.A.
1953
160
203
192
161
a. Based on constan 9 prices.
b. Based on the estimates in Table 4, P. La, above, converted to a
constant 1945 price base. '
The construction materials branch of industry includes, in
addition to the enterprises o? the Ndnistry of the construction
Materials Industry, construction materials enterprises subordinate to
the various construction ministries, to other industrial ministries,
and to republic ministries of local and fuel industry. No infor-
mation is currently available with regard to the proportion of total
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investment in the industry which is accounted for by the Ministry of
the Construction Materials Industry.
B, Irroestment Trends.
Since 19118, investments in the machine-building industry have
been increasing at a slower rate than total investments and at about
the same rate as investments in the industrial sector of the economy
as a whole. (See Table 34) The lack of emphasis on investment in the
machine-building industry would seem to indicate that the machine-
building base of the econoir{y of the USSR is relatively well developed .
as compared with other sectors of the econoa{y, particularly the fuel
and energy base. A contributing factor to the lack of emphasis on
investment in the machine-building industry, which is related to the
relative maturity of -that industry in the Soviet economy, is that the
capital-output ratio appears to be declining in the machine-building
industry; that is, output appears to be increasing at a faster rate
than the increase of the stock of capital assets. This situation is the
opposite of that prevailing in the coal, petroleum, and electric power
industries of the USSR but it is in accord with the findings of a
recent study of U3 manufacturing industries. 203 This study indicates
that capital-output ratios in manufacturing tend to increase until an
industry reaches a relatively mature state, after which capital-.
output ratios tend to decline. For manufacturing industries in
general, capital-output ratios in the US steadily increased from 1880
to 1919, after which they showed a steady decline.
The Soviet authorities actually planned a decline in capital-
output ratios in the economy generally in the Fourth Five Year Plan,
as compared with prewar relationships. In the Fourth Five Year Plan
20 percent to 30 percent more output was to be produced per ruble of
fixed capital assets than in the prewar five year .plans. 204/
The experience of the US would indicate that the greatest
reductions in capital-output ratios should come from the more mature
industries. Etidence of such a reduction in the machine-building in-
dustry of the USSR is found in a statement by the Minister of the
Construction and Road Machine Building Industry. He stated, with
reference to his Ministry, that "in 1950 for .each ruble added to the
fixed capital, 2.5 times more production was obtained than in
19116." 205 Although the 2.5 times figure is undoubtedly inflated
by the fact that 19116, the first postwar year, does not constitute
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a normal year for comparative purposes, nevertheless, after giving due
weight to this factor; it would seem probable that capital-output ratios
have been declining in the machine-building industries. The statement
is the more significant because the Ministry of Construction and Road
Machine Building is one of the least mature branches of the Soviet
machine-building industry. .
Irroestment in the construction materials industry has ,been in-
creasing since 1948 at a faster rate than total investment and at a
substantially faster rate than investment in industry generally.
(See Table 34#) The construction materials bottleneck, which has
hampered construction plans all through the postwar years, has forced
the Soviet authorities to increase sharply the volume.of irroestment
funds allocated to the relatively backward construction materials
industry. An extremely ambitious im~estment program is envisaged
in the Fifth Five Year Plan. Capital investments in the construction
materials industry are planned to be 3 times the volume of investments
made during' the Fourth Five Year Plan. 206 The achievement of this
goal will require a considerable effort in 1954 and 1955, because the
level of investment in the first 3'years of the Fifth Five Year Plan.'
appears to have been only about double the level of investment during
the first 3 Years of the Fourth Five Year Plan period.
The efforts being. made to develop the construction materials,
industry are reflected in the pattern of inrvestment in the machine-
building industry. It was reported that in the tfinistrg of Construction
and Road machine wilding, which produces much of the equipment used
by the construction materials industry, 20~ 18.5 percent more fixed
capital was placed into operation in 19 than in 1949. In addition,
it was reported that in 1950 the stock of fixed capital of the Minis-
try of Construction and Road Machine Building was 2.ly times the 1946
stock.- This indicates a substantially greater rate of investment
in the Ndnistry of Construction and Road Machine Building than the
rate of investment reported for the machine-building industry as a
whole.
C. Investment Program, 1954. ?
The 6-month plan fhlfillment report for 1954 stated that
the volume of imrestment was 16 percent greater in the machine-building
industry and 10 percent?greater in the construction materials industry
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than in the corresponding period of 1953. 208/ The 16-percent
increase reported for the machine-building industry is the largest
increase reported for this industry in arty comparable period during
the postwar pears. Presumably this increase reflects investments
in new or expanded plants and equipment to produce machinery and
equipment for the implementation of the new economic program.
The relatively small increase of 10 percent in investment
in the construction materials industry is somewhat surprising. This
is only slightly higher than the 8-percent increase reported for the
first 6 months of 1953, although the rate of increase of total central-
ized investment is more than 3 times the rate of increase of the
first 6 months of 1953. On the basis of this performance it seems
clear that the Fifth Fine Yeaz~ Plan for investment in the construc-
tion materials industry will not be fulfilled.
No information is available concerning investment in the
machine-building and construction materials industry in 1947 except
the report that the investment plan for the Ministry of the Con-
struction materials Industry was fuliilled by only 60.3 percent and
the plan for entry of new plants into operation was fulfilled by only
23.1 percent. 209.
In 19118 it was announced that investment in the machine-building
industry was 15 percent greater than in 1947. 210/ No information was
published concerning investment in the construction materials industry.
In 1919 it was reported that investment in the machine-building
industry had increased by 10 percent and investment in the construction
materials industry by 12 percent over 19118. 2ll The 1949 irrvestment
plan for the tti.nistry of the Construction Materials Industry was ful-
filled by only 90.8 percent and the plan ?or the construction of
housing by only 89.5 percent. 212/
The 195C plan fulfillment report stated that investment in the
machine-building industry had increased by 9 Percent and investment in
the construction materials industry had increased by 16 percent over
1949. 213/
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A very large increase in investment in the construction ma-
terials industry was planned in 1951, an increase of more than 80
percent over the 1950 volume of investment. The plan for construction
and installation work was only 73.6 percent fulfilled, but despite.
this, investment in the construction materials industry was 35 percent
greater than in 1950. 27]1 Only slightly more than 50 percent of the
new plants provided for he Ministry of the Construction Materials
Industry in the investment plan were completed aril placed into oper-
ation in '1951. 215/ The 1951 plan fulfillment report stated that
investment in the machine-building industry exceeded 19$0 imrestment
by 10 percent. 216/
The 1952 plan fu7.fi171nent report stated that investment in
the machine-building industry increased by 12 percent and that in-
vestment in the building materials industry increased by 9 percent
over 1951. 217
The 1953 plan fulfillment report stated that capital in-
vestments in the machine-building and building materials industries
were greater than in 1952, but no percentage increases were given. 218/
It also stated that the plan for completing industrial installations
was considerably underfulfilled by the i?Iinistry of the Construction
?Materials Industry. The plan was probab]y also underfulfilled in the
machine-building industry. In August 1953, the Minister of Machine
Building, S.A. Akopov, spoke of the need for eliminating the lag in
the construction of large machine tool plants. 219/
The plan fulfillment report for the first 6 months of 1953
stated that investment in both the machine-building and construction
materials industries was 8 percent above the corresponding 6-month
period of 1952. 220/ In preparing the indexes in Table 30, it was
assumed that theme-percent increases reported for the first 6
months were applicable to the entire year. For the rationale
supporting this assumption the reader should refer to Part IV,
Investment in the Coal and Petroleum Industries.
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VIII. Investment in the Residual Industries.
A. Definition of the Residual Industries.
The term "residual" industries refers to all branches of the
industrial sector whose investments are financed through the residual
or unallocated sector of the industrial investment budget. This
includes all industries except those for which ruble investment es-
timates have been made in this report, t}rat is, all industries except
the coal, petroleum, electric power, metallurgical, and light and
food industries.
The residual industries are composed o? the following: machine-
building, chemicals, construction meteri.a,ls, lumber and paper, defense
(conventional weapons) and construction.
B. Investment~Trends.
Estimates of investment in the residual industries can be
made only for 191r8 and 19$3, the only postwar years for which official
figures for total actual investment in industry are available. De-
ducting the 1948 estimates for investment in the -coal; petroleum,
electric power, metallurgical, and light and food industries from the
total 19118 investment in industry o? 116.1a billion rubles leaves 20.2
billion rubles for the residual industries, or about 44 percent of
the total investment in industry. The corresponding'?igure for 1953
is 30.5 billion rubles, or about 35 percent of the total.
The investment allocation to the residual industries in 1953
constitutes a smaller proportion o? total investment in industry than
the proportion allocated to these industries in the prewar years.
Between 1930 and 1939 the investment allocations to the residual in-
dustries ranged from 112 percent to 52 percent of total investment in
industry, increasing to 58 percent of the total in the 19111 Plan. 221/
The increase in allocations ~o the residual industries in the 19111
Plan reflected a diversion of investment funds to the defense industries.
As noted above, the share of the residual industries in total
investment in industry is estimated to have declined from about 1111
percent of the total in 1948 to about 35 percent of the total in 1953?
At the same time, it is known that investment in the machine-building
industry increased between 1948 and 1953 at about the same rate as
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total investment in industry and that irnestment in the construction
materials industry during the same period increased at a considerably
faster rate than total investment in industry (see Table 30#), This
means that all of the reduction in the share of total investment in
industry going to the residual industries was confined to the in-
dustries other than machine-building and construction 'materials.
Of the remaining industries, onlp the cherrdcal industry and the defense
industry (conventional weapons) are of any substantial size. These
relationships would seem to indicate that there could not have been
arrv substantial increases, and there probably was a decline, in the
share of investment in industry going to the defense industry
(conventional weapons) between 191.18 and 1953.
C. Allocation of Investment among the Residual Industries.
An examination of-the prewar allocation of investment among
the residual industries throws some light on the postwar allocation
of investment among these industries. Scattered information on
actual investment in 1934, 1938, 1939, and 19lt0 and in the 1933-37
Plan and complete information on planned investment in 1934, 1935, and
1936 provided the basis for calculating the ranges for investment
among the residual industries as percentages of total irnestment in
industry shown in Table 31. 222/
Investment in the Residual Industries in the fTSR
as Percentages of Total Investment in Industry
Various Prewar Years
Industry
Percent
Machine Building
12 to 19
Cherrdcals
7 to 11
Construction Pfaterials
1 to 3
Paper
1 to 3
Defense Industry, Timber Industry, Construction
Industry, and All Other
11r to 16
Total
35 to 52
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The investment allocations in the 19111 Plan were deliberately
excluded in computing the ranges in Table. 31. This was done because
the 19Lt1 Plan was clearly a war preparedness plan, and the pattern of
investment allocations in the 19Lr1 Plan differed very radically from
the pattern o? the earlier prei~rar years. In the 19111 Plan the residual
industries accounted for 58 percent of total investment in industry,
cahich is a considerably higher.,pronortion o? the total than in any
earlier prewar .year or in any postwar year for which information is
available. wen more significant, however, is the fact that the
allocations to the defense industry accounted for about 7$ percent of
the total investment in the residual industries. The allocation of
investment among the residual industries in the 1941 Plan is shown
in Table 32.
Investment in the Residual Industries in the USSR
as Percentages of Total Investment in Industry ~,,,~
1941 Plan
Industry Percent
Machine Building 8
Chemicals 11
Construction Materials 1
Paper 1
Defense Industry, Timber Industry, Oonstruction
Industry, and All Other Illy
In the later postwar years the proportion of total investment
in industry allocated to the chemicals and construction materials in-
dustry probably would be near the upper limit of their peacetime
prewar ranges of 11 percent and 3 percent, respectively, and the pro-
portion of total investment in industry allocated to the machine-
building industry probably would be near the lower limit of its pre-
war peacetime range of 12 percent (see Table 31). Some postwar
information is available on the level of investment in the timber
industry. In the Fourth Five Year Plan the volume of capital
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investment in the USSR Plinistry of the Timber Industry was to be Lr
billion rubles. 224 This is about 2.5 percent of the planned 157
billion rubles of centralized investment in irdustry during the
Fourth Five Year Plan. No information is available with regard to
investments by the construction industry, but this industry un-
doubtedly accounts for a very small percentage of total investment
in industry.
An examination of the residual elements in industrial in-
vestrrents in 19Lr8 and 1953 leads to the following conclusions about
the approximate size of investments in the defense industry (con-
ventional weapons): (1) the proportion of total industrial investment
allocated to the defense industry (conventional weapons) in 1953
probably does not exceed 1$ percent, which would amount to about 12
billion rubles in current prices, and it may be substantially less
than this proportion; (2) the proportion of total industrial invest-
ment allocated to the defense industry (conventional weapons) in
1953 is probably no more than one-third of the proportion of total
industrial investment allocated to the defense industry (conventional
weapons) in the 19Lt1 Plan; and (3 ), as noted earlier, there could not
have been arty substantial increase, and there probably caas a. decline,
in the share of industrial investment going to the defense industry
(conventional weapons) between 1948 and 1953?
;r Fifteen percent is approximately the proportion of total industrial
investment allocated to the defense industries in 1934-36. 225
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IX, Postwar Indus r;~i Tnv~ m n Poi~~y of h SR,
A, Princianl Feat?Lres,
Three principal features of the post~?rar investment policy of the
USSR should be noted, First, the postwar investment programs have been
very large-scale programs, They have probably absorbed a larger frac-
tion of the gross national product of the USSR than in most if not
ally of the prewar years,# Second, the allocation of investment among
the various sectors of the economy has been very stable during the
postwar years, There have been no drastic changes in the allocation
of investments such as occurred during the 1936-41 period, Third, the
share of total investment going to heavy industry has been very large --
much larger than in the pre~mr years, men in the 1954.P1an, tohich
represents a not insignificant concession to the Soviet consumer, the
share of total investment going to heavy industry is still considerably
larger than in the thirties, If, for example, the light and food in-
dustries were to receive the same proportion of total industrial in-'
vestment which they received in the 1936 Plan, the 1954 Flan woulfl have
to call for the investment of about 25 billion rubles in the light and
food industries instead of the 14.4 billion rubles which have actually
been allocated to those industries,
The stability of Soviet investment allocations during the
postwar period would tend to indicate that Soviet expectations and
policies were also relatively stable during this period, There were,
however, some shifts in'the emphasis of Soviet investment programs
during the. postwar years tinich~ while-they did not involve radical
changes, may be o? some significance in evalusting Soviet intentions
during this period,
B, Phases of Soviet Postwar Investanent Policv,
1, 19 6- o,
The postrorar industrial investment programs of the USSR ;may
be divided into three phases, The first phase, which covered the years
of the Fourth Five Y;;ar Plans was dominated by a strenuous attempt to
rebuild and expand 'Heavy industry, In terms o? investment allocations,
_gg_
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the pace of the develognent of heavy industry was substantially
greater during the years 194b-50 than during any poriod of the
thirties, Heavy industry absorbed about 50 percent of total in-
vestments during this period as compared to only about 40 percent
during the prewar years, The other sectors of the economy received
a correspondingly smaller share of investment allocations, The
sectors of the economy oriented toward the ccnsumer were particular-
ly hard hit by this policy, In 1937, for example, agriculture received
about 22 percent of total i.rvestment, while in 1948 it received only
about 15 percent,# In 1938 the light and food industries received
about 15 percent of total industrial investment, while in 1948 they
received only 11 percent, As the Fourth Five Ysar Flan proceeded, .
however, and the Soviet leaders began to ?eel more comfortable with
the restoration of heavy industry, they permitted small and very
gradual increases in the proportion of investment funds allocated to
the light and ?ood industries and agriculture,
2, 1951- 2',
In 1951 and 1952 the very gradual trend toward allocating
a larger fraction of investment funds to, the consumer-oriented in-
dustries was reversed, Investment in the light and food industries
declined in 1951 and in 1952 is estimated to have remained substantially.
below the 1950 level, Investm?~nts in agriculture in 1952 are also
estiraatad to have been substantially below the 1950 level, The
.decline in investment in the light and food industries and agriculture
between 1950 and 1952 took place while total i-nvestment was increasing
by more than 20 percent, The proportion of total investment allocated
to the light and food industries and agriculture declined from about
25 percent in 1950 to about 21 percent in 1952. .This shift in policy
seems clearly i:o indicate an adjustment occasioned by the Korean war
toward investment undertakings that would .increase the short-term war '
capabilities of the LSSR,
3. 195 -
The third phase o? posti~rar Soviet investment policy began
~.~~.th the death of Stalin and the anr.,ouncement of t_ze new economic policy,
with its increased emphasis on investment in the light and food in-
dustries, agrict~lture,and trade, Investments in the light and food
# Based on 15 .
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industries and agriculture are estimated to have increased from about
21 percent of total investment in.1952 to about 28 percent in the 1954
Plan, A change of this limited magnitude does not,. of course, con-
stitute a fundamental change from the investment policy of the-earlier
postwar years, Its real significance lies in the fact that it represents
a reversal of -the trend of investment policy in 1951-52.
The postwar years have been characterized by an extreme effort
to expand heavy industry, an effort which, from the standpoint of in-
vestment policy, exceeded in intensity that of the prewar years, This
economic policy parallels the military policy of the i).S5R during the
postwar years, a policy which called for the maintenance of an advanced
state of readiness for war, In the heavy industrial sector this policy
was not reflected in extraordinarily large investment allocations to
the defense industry (conventional weapons) but, rather, in large in-
vestments in the basic _hdustries, frith particular emphasis on the
rapid developaent of the fuel and energy sector of the economy,
The new economic policy has not resulted in a radical shift in
the allocation of investments in the USSR, It did, however, have the
have the effect of slowing doom the growth of heavy industrial capac-
itr in 1053, and i.t has resulted in an investment nro;ram in 1954 which
is probably less Drell-adapted to promote short-term war capabilities
than the investment program of any other postwar year, psrticularly the
investment programs of 1951-52.
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This appendix covers questions of methodology which are common
to the estimates for all industries and which have not been thoroughly
explained in the text.
1. Soviet Investment Terminology.
The Soviet term for capital investment (kanital'n~ye vlozheniya)
is substantially identical in meaning; with .the term as it is used in
the US. The only mayor difference is in the treatment of invest-
ment in agriculture. 229 Two other terms are also used by the
Soviet authorities as synonymous with capital irnestment: capital
work (kapital'nyye raboty) and capital construction (kapital'nyye
stroitel'stva).
A Soviet statistical book published in 1952 takes exception to
the use of the term "capital construction" as synonomous with "capital
investment", arguing that its meaning should be restricted to con-
struction in the narrower sense (not including equipment). 230/
Another Soviet statistical book, published in 1949, makes the same
complaint. The latter book states that "in planning and in statistical
practice ... the terms 'capital investment' and 'capital construction'
are frequently used as synonyms." 231 Despite the objections of the
statistical theorists, the Soviet planners apparently continue to use
the terms as synonymous. They have been so interpreted in tkiis report.
Capital investment has four principal components: (1) construction
work (stroitel'gyye raboty); (2) equipment (oborudovaniya); (3) work
in installing equipment (raboty po montazhu oborudovaniya); and (4)
expenditures not connected with an increase in fixed assets (zatraty ne
svyazanniye s prirostom osnovnykh sredstv). Expenditures not connected
with an increase in fixed assets include such items as geological work
not connected with a specific construction project and the salaries of
management personnel of enterprises under construction. Construction
.and installation work is counted in capital investment as the work
progresses. Equipment is counted in capital investment as soon as it
is received on the site, whether or not it is installed and placed in
operation. 232
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In addition to reporting investment work undertaken during a
given period, reports are also made on the entry of fixed assets into
operation (vvod v deystviye osnovrrykh fondov) and the entry of pro-
ductive capacity into operation (vvod v deystviye proizvodstvennykh).
The former is .the capital investment in new capacity which was placed
into operation during the period; the latter measures the new capacity
placed in operation during the period in terms of physical units, that
is, tons, kilowatts, or square meters. Anew plant is not included
in the fixed assets of an industry until it is completed and has
started to operate, although the investment in new plants is reported
in investment by the industry as the work progresses.
2. Coverage of Soviet Industrial Investment Data.
Soviet industrial investment statistics are classified principally
in two ways, by branch of industry and by ministry. All enterprises
'are classified into branches of industry "according to the predominant
character of the production". 233/ For example, a machine-building
plant under the jurisdiction of the Ministry of the Petroleum Industry
would be classified in the machine-building industry in the branch
classification. Investments in such a plant would be classified under
the machine-building industry in the branch classification and under
the Ministry of the Petroleum Industry in the ministry classification.
There are two reasons given for keeping dual accounts on industrial
investment. First, the branch classification facilitates comparisons
of investments in various periods. The comparisons are not .distorted
by shifts of plants from one ministry to another or by changes in the
composition of the ministries themselves. 234/ Second, much of the
capital investment program is planned on a branch basis as well as on
a ministerial basis, and reporting of investment is required on a
branch basis in order to have a complete check on the fulfillment of
the investment plan.
The most difficult problems involved in producing the estimates
in this report stermned from this dual accounting o? industrial in-
vestment in the USSR. Some of the available investment information
pertains definitelyy to ministries, some pertains definitely to
branches'of industry, and the coverage, of much of the rest of the
data, particularly the percentage increases in investment given in
the plan fulfillment reports, was uncertain.
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A speech by M.G. Pervukhin in April 1954 clarified the situation
considerably. 235 He stated that more than 13 billion rubles were to
be invested in a ectric power stations and networks by all ministries
in 1954. This is definitely a reference to a branch irroestment figure
and not to investment in the ministry of Electric Power Stations.
This 195b Plan figure is consistent with the 1954 estimate derived
from the ad3usted 1947 planned investment in electric power stations
and percentage increases for the subsequent years. This consistency
indicates that both the 1947 planned investment figures and the indexes
o? investment for the various segments of industry refer to branches
of industry rather than to ministries.
In many cases there will be little difference between the branch
figures and the ministry figures. For example, investment in the
petroleum branch of industry should be appro~d mately the same as in-
vestment in the Ministry of the Petroleum Industry. The only signi-
ficant difference would be that investments in mabhine-building plants
subordinate to the Ministry of the Petroleum Industry would not be
included in investment in the petroleum branch of?industry. The most
substantial difference would arise in the case of electric power, since
it is estimated that during the postwar years about 20 percent of the
total new electric power capacity has been constructed outside of the
Ministry of Electric Power Stations. Under these circumstances the
close correspondence of the 1954 estimate, as derived from the 1947
Plan figure, with the 195b Plan figure in Pervukhin's statement con-
stitutes a strong indication that both the 1947 investment plan
figures and the investment indexes relate to branches of industry and
not to ministries.
Further evidence that the published investment indexes refer to
branches of industry rather than to ministries is found (1) in the
fact that the classification of industries in the investment indexes
follows closely the classification of the branches of industry and (2)
in the statement made in an article in Planovoye khozyaystvo in 1951 .
to the effect that the branch classification is more significant for
planning purposes than the ministerial classification. This article
states: 236/ "The structure of the coital work plan on the branch
level proves to be of particular significance in the analysis and
coordination of the capital work plan with other basic economic and
political tasks."
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The only indication that the industry investment indexes might
refer to ministries is the fact that the plan fulfillment report for?
the first 6 months of 1953, paralleling the merger of the Niiilistry
of Electric Power Stations and the Ministry of Electrical Industry,
reported investment for electric power stations and electrical in-
dustry combined. If the previous investment indexes for electric
potaer stations had been branch figures, then the 1953 index should not
have been affected by the merger of the P4i_nistries. This indication,
however, rras not considered significant enough to out*aeigh the pre-
ponderance of evidence supportinP the branch interpretation.
The investment estimates do not include capital repairs, that is,
major repairs to equipment and structures. Capital repairs should
properly be included in capital investment, but i.t is the Soviet
practice to plan and finance them independently. They are not in-
cluded in the .State plan of capital investment. 237/ No postwar
information is available on the volume of capita~epairs in parti-
cular industries, but they are estimated to have amounted to about
15 percent of total investment in the economy during the postwar
.years. 238
It is assumed that the investment figures published by the USSR
for the various branches of industry include nonproductive invest-
ments; that is, housing, social-cultural, and municipal construction.,
This assumption is based on two considerations. First, a Soviet
statistical book, in discussing the classification of enterprises
into branches of industry states: "It is necessary to classify the
enterprise as a whole, and not merely the single part of it, under
one branch or another. In other words, the enterprise is the only
thing we are classifying." 239/ In discussing the rr~aning of the
term enterprise, this same oviet source states: "Our industrial
enterprises usually are complex economic units, which, in addition to
their industrial-production activity, perform other economic functions
(the residence economy, community econorr{y, trade activity, etc.).." 210/
The failure to qualify the statement that the entire enterprise is
classified into one branch or another implies that nonproductive in-
vestments made by an enterprise are placed in the same branch classi-
fication as productive investment by the enterprise.
A second and more conclusive consideration is that a comparison of
the total volume of investments in housing construction by the indus-
trial ministries with the residual remaining after deducting the sum
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of the industry estimates of investment from total investment in
industry indicates that housing aril other nonproductive investments
must be included in the branch investment figures. For example,
in 1953,tot~1. investment in industry, including nonproductive in-
vestments by the industrial ministries, xas 87.6 billion rubles.
Deducting the estimated investments of 27_.4 billion rubles for the coal
and. petroleum industries, 7.6 billion rubles for the light and food
industries, 11.0 billion rubles for the electric power industry, and
16.1 billion rubles for the metallurgical industry leaves a residual
of 30.5 billion rubles. In this residual are investments in the
following industries: machine-building, chemicals, construction
materials, timber and paper, defense, and construction:
In 1953, 19.4 billion rubles were invested in housing construction
in the USSR. 241 Of this amount probably about 14 to 15~billion
rubles were f nanced through the investment budgets of the industrial
ministries. Since housing construction constitutes about 80 percent
of all nonproductive investments in industryy 242/ total nonproductive
investments in industry probably amounted to about 17 to 19 billion
rubles in 1953, or 19 to 22 percent of total investments in industry.
If nonproductive investments were not included in the investment es-
timates for the electric ror+er, coal, petroleum, metallurgical, and light
and food industries, then the entire estimated 17 to 19 billion rubles
for nonproductive investments by industry would have to come out of the
residual of 30.5 billion rubles. This would leave only 11 to 13 billion
rubles for investment in all of the residual industriea. This is
clearly too low a figure.
In the prewar years the industries for which ruble estimates are
presented in this paper accounted for 55 to 60 percent of total in-
vestment in industry, with the exception of 1941, when they accounted
for only little more than 40 percent of the total. 243/ The residual
industries accounted for about 40 to 45 percent of the total, rising
to about 60 percent of the total in the 1941 plan. I? it'is assumed
that nonproductive investments are included in the industry investment
estimates, then the, entire residual of 30.5 billion rubles would be
allocable to the residual industries. This would amount to about 35
percent of total investment in industry. Although this is a smaller
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fraction of the total than these industries accounted for during the --
prewar years, it looks reasonable in view of the greater emphasis on
developing the fuel and energy sectors of the economy during the post-
war ,years. On the other hand, if all housing and other nonproductive
investments were assumed to be in the residual 30.5 billion rubles,
then only 11 to 13 billion rubles would be allocable to the residual
industries, or only 12 to 19 percent of total investment in industry.
Since this is obviously much too low, it was concluded that nonproduc-
tive investments are included in the industrial branch. investment
estimates.
Two changes in Soviet investment accounting which affect the
comparability of the postwar investment estimates should be noted:
the change in the treatment of "extra-limit" investments and the
removal of planning and research work from the investment budget.
Prior to 1949, the so-called'bxtra-limit"investments were not in-
cluded in the State plan of capital investment. In 1950 (and
possibly in 19l~9) this practice was changed, presumably to provide
for greater centralized control over the total investment program,
and the category of "extra-limit" investments was eliminated. 2411
Investments that formerly fell into this category are now included in
the.State plan of capital investment.
"Extra-limit" investments have been estimated at about 12 percent
of total investment (excluding capital repairs) in 1948. 245/ For-
tunately, they were undoubtedly a much smaller fraction o? total in-
vestment in the industrial sector of the economy. "Extra-limit"
investments in heavy industry Faere probably of negligible proportions.
They were probably significant only in the light and food in-
dustries. 246/
Beginning in 1951, planning and research work has been financed
outside the investment budget. 247/ Planning expenditures in 1951
were to amount to 3.7 billion rubes, or about 3 percent of planned
centralized investment in that year. 248/
The effect of the change in the treatment of?!'extra-limit" in-
vestments would be to understate investment in the years preceding
1949 relative to the later years. On the other hand, the change in
the treatment of planning and research work would have the opposite
effect, that is, to understate investments in the years following
1950 relative to the earlier years. To some extent these changes
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will offset each other. With the possible exception of the light
and food industries, it is believed that these changes in investment
and accounting do not seriously impair the comparability of the industry
investment series.
3? Price Comparability of Soviet Investment Indexes.
It has been assumed that the Soviet investment indexes are stated
in comparable prices. This assumption is supported by a statement in
a Soviet statistical book, published in 1952, to the effect that
indexes of the volume of capital investments ?or?the USSR during the
period 19116-50 were constructed on the basis of constant 1945 prices. 219
4. Investment Price Indexes Ilnployed.
The conversion of the estimates of total investment and total
centralized investment from current prices to constant 1945 prices was
made on the basis of the investment price index implicit in the esti-
mates of total centralized investment. The Russians publish annually
the real volume of State investment as a percentaPe of the preceding
year. By comparing this real investment series to the estimates of
total State investment (centralized investment) in current rubles, the
price index in Table 33 was constructed.
Soviet Investment Price Index,
1945-52
Year
Index
1945
loo
19116
110
1947
120
191x8
128
1949
142
1950
142
1951
131
1952
125
1953
125
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The conversior. of estimates of investment in industry and in
particular branches of industry from constant 19115 prices to current .
prices, and vice versa, was made on the basis of the investment price
index in A. Nove, A D?ote on the Volime.of Soviet Investment (unpub-
lished manuscript, U is i,n ex a le was construe ed in the
same manner as the index in Table 33. The major weakness of Novers
index is that it is based, in part, on planned rather than actual
investment.
Novers Investment Price Index for the USSR
1945-53
19115
100.0
1946
1011.1
1947
110.7
1918
110.7
1949
146.6
1950
141.4
1951
137.2
1952
133.1
1953 ~
128.9
a. Novers in ex oes not give'a figure
for 1953. The index for that year is based
on the assumption .that the planned reduc-
tion in investment costs was fulfilled. 250
This may not be an appropriate assumption
in view of the complaints in the Soviet
press with regard to the failure of various
ministries to fulfill the planned cost re-
ductions i.n their investment undertakings. 251
In any event, the possible error in the 'price
decline assimed for 1953 cannot be of suf-
ficient magnitude to affect seriously the
estimates.'
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Both the index in Table 33 and the index in Table 34 pertain to
price changes affecting total State investment. Neither index is -
particularly well suited to serve as a deflator for total industrial
investment or for investment in particular branches of industry. The
justification for using either index for these purposes is that no more
suitable indexes are currently available. The principal differences
between the index in Table 33 and Novers index are found in their des-
cription of price movements between 191u and 1949, the latter showing a
more gradual increase in 1945-4e and a much sharper increase in 1949
than the index in Table 33. One problem affecting both indexes is the
uncertainty about the comparability of the series for total State in-
vestment introduced by the change in the treatment of extra-limit
investments in 1949.
It was decided to use Novers index for deflating estimates of
investment in industry and in particular branches of industry because
the movements of Novers index during the 1945-49 period correspond
rather closely with most of the information pertaining to investment
costs in the industrial ministries, including the coefficients issued
to the industrial ministries by the Ministry of Finance ?or converting
from 1945 planning prices to 19119 prices. 252 It is clear, however,
that the use of Novers index for this purpose is an unsatisfactory
expedient.' It is .believed that research now in progress will produce
more satisfactory price indexes for the industrial sector of the
economy as a whole and for the various branches of industry.
5. Estimating Procedure Employed.
The basic estimating procedure used in producing most of the in-
vestment estimates in ?his report is as fmllows: (a) The starting
point is the 19117 investment plan for branches of industry, stated
in 19115 .prices. (b) The first step is to adjust the 1947 planned
investment figures to reflect the degree of fulfillment of the plan.
(c) The second step is to apply percentage increases for investment
in the subsequent years to the 1947 base figure to produce the es-
timates for the later years. In both the first and second stepsM
information relating to ministries as well as to branches o? in-
dustry was used. (d) The third step is to apply the investment .price
index to convert the estimates from 1945 prices to current prices.
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S-E-C-R-E-T
The validity of this estimating procedure is supported by the
following considerations:. (a) The estimates appear to be consistent
~,~ith the folloiui-ng publish'ed information: (1) investment by the
Ministries of the Foodstuffs and P'lanufactured Consumer Goods In-' '
dustries in 1953 and in the 1954 Plan; (2) investment in the electric
power industry .in the 1954 Plan' and (3) investment by the P'[inistry
of the Cpal Industry in the 1954 Plan. (b) The various industry
investment estimates, when aggregated, appear to be consistent with
the published information on total investment in industry in 19118,
in the 19119 Plan, in 1953, and in the 1954 Plan. (c) The estimates
are also consistent with a number of other checks which were applied
to them and described in the text. -
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SECRET
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